Shepherd and Wedderburn LLP
  January 20, 2005 - Scotland

I am a company director and wonder if there are any issues I should take account of before we make a donation to a charity or a political party?
  by Iain Meiklejohn

The first legal issue to consider is whether your company has the power to carry out non-commercial dealings such as making political or charitable donations. The company's constitution should be reviewed to ensure the company is expressly empowered to make such donations. If no express power exists you could consider putting a relevant amendment of the constitution to a shareholders' vote. If the constitution contains the necessary provision you should check for any limitations on the power – it is common for a company's constitution to specify that any donation must be to an organisation with which the company is in some way connected. The next issue will involve a review of the company's finances. As directors, you and your fellow board members have a duty to the company and its shareholders to conduct the affairs of the company in accordance with their best interests. You must ensure that the size of any donation is appropriate given the company's financial position – including any future requirements. These considerations are important as you may be personally liable to repay any sums donated in breach of your fiduciary duty. With a general election coming up, you should be aware that donations to political parties are not charitable donations and that political donations totalling more than £5,000 in one year will require the prior approval of the shareholders of the company. Failure to obtain such prior consent will leave you liable to pay back the relevant amount to the company. Finally, on a positive note, charitable donations may be given under the Gift Aid scheme, which allows certain donations to be made out of pre-tax profits. You may wish to discuss this further with your advisers as qualifying donations may, depending on your company's tax position, have a net cost to the company which is less than the gross value to the charity in question.


Footnotes:
Iain Meiklejohn is a partner specialising in corporate finance with commercial law firm Shepherd+ Wedderburn 44 (0)131 473 5253