Charity & Corporate Partnerships: Managing Legal Risks

Introduction

For many charities, forming a corporate partnership is a powerful strategy to raise funds, access vital resources, and ultimately extend their reach and impact within the community. This type of collaboration allows a charity to further its charitable purpose, while the corporate partner can meet its social responsibility objectives and benefit from being associated with valuable charitable work.

While these collaborations offer significant opportunities, they also come with legal obligations and risks that must be managed with careful governance. A poorly planned partnership can create conflicts of interest, drain a charity’s resources, and damage its reputation, potentially triggering NFP & charity dispute investigations from regulators like the Australian Charities and Not-for-profits Commission (ACNC). To successfully collaborate, it is essential to understand the legal framework and seek specialised legal advice from a not-for-profit lawyer to protect your organisation.

The Rise of Social Enterprise Partnerships & Financial Risks

The Financial Upside & Legal Risks of Social Enterprise

Charities are increasingly forming corporate partnerships with for-profit organisations, a key strategy in NFP & charity social enterprise structuring, to enhance financial sustainability. These collaborations provide access to essential funds, resources, and expertise, allowing a charity to extend its reach and impact.

This arrangement is often mutually beneficial, as the corporate partner can fulfil its social responsibility objectives while gaining a positive association with the charity’s work.

While these partnerships offer a significant financial upside, they also introduce substantial legal risks. Some of the key risks and challenges include:

• Poorly planned collaborations can drain a charity’s resources, damage its brand, and lead to legal disputes.
• Upfront costs can be high, involving expenses for due diligence, legal reviews of any partnership agreement, and new branding initiatives.

For this reason, it is important to seek legal advice from a not-for-profit lawyer to help manage the complexities of these commercial arrangements.

Understanding Motivations & Misaligned Objectives

A successful corporate partnership hinges on the alignment of goals between the charity and its for-profit partner. However, the motivations driving each organisation can differ significantly.

A charity is focused on its mission, whereas a for-profit entity may be driven by:

• Commercial goals
• Brand enhancement
• Other corporate objectives

These differing priorities can lead to misaligned objectives, creating conflict and inefficiency within the collaboration.

One of the most common reasons for partnership failure is a lack of clear communication about each party’s expectations and desired outcomes. To prevent disputes, it is crucial for both organisations to be candid and transparent about their motivations from the outset.

A formal partnership agreement should be used to:

• Document shared goals
• Define roles and responsibilities
• Establish a clear framework for the collaboration

Regulatory Risks Involving Australian NFPs

When Collaborations Breach the Private Benefit Rule

A corporate partnership must always serve your charity’s purpose. Any benefits provided to a for-profit partner should be reasonable and in the charity’s best interests. The ACNC has strict rules against providing excessive private benefits, which can pose significant risks in collaborations, especially when it comes to handling a charity’s related party transactions.

A related party transaction involves a transfer of resources, services, or obligations between a charity and a person or organisation with significant influence over it. This includes situations where a corporate partner has a conflict of interest. While not all related party transactions are inherently problematic, they can lead to breaches if not managed carefully.

Scenario Triggering Scrutiny	Description
Unfair Service Fees	Paying fees to a corporate partner for goods or services that are not at fair market value.
Improper Asset Transfer	Transferring charity property or assets to a partner without appropriate compensation.
Unfavourable Loans	Providing loans to a related party on terms that are not favourable to the charity.
Unfair Property Use	Allowing a partner significant use of the charity’s property without a fair arrangement.

These actions can create a conflict of interest and potentially breach the duties of your charity’s Responsible People under ACNC Governance Standard 5, a key area of NFP charity governance and ACNC compliance. This standard requires Responsible People to act honestly, fairly, and in the best interests of the charity.

Failing to manage these transactions transparently can lead to:

• ACNC investigations
• In serious cases, the revocation of charity status

NSW Fair Trading Investigations & The Charitable Fundraising Act

If your corporate partnership involves charitable fundraising activities in New South Wales, you must comply with the Charitable Fundraising Act 1991 (NSW). A poorly managed collaboration can easily breach these regulations, potentially triggering an investigation by NSW Fair Trading and damaging your charity’s reputation.

To remain compliant, your charity and its partner must adhere to several key legal obligations. It is crucial to understand the legal requirements to avoid penalties and maintain public trust. Key compliance points include:

Compliance Area	Requirement
Fundraising Licence	Your organisation must hold a valid fundraising authority issued by NSW Fair Trading unless an exemption applies.
Financial Reporting	All partners in the collaboration must follow strict rules regarding financial reporting and public disclosure of funds raised.
Clear Disclosures	You must be transparent with donors about how proceeds from fundraising activities will be shared or distributed between the charity and its corporate partner.
Consumer Law	Promotional materials for joint campaigns must not be misleading or deceptive, as this would breach the Australian Consumer Law.

Given the complexities of state-based regulations, it is highly recommended to seek legal advice from a lawyer specialising in the not-for-profit sector. A specialist can help ensure your partnership agreement and fundraising practices meet all requirements under the Charitable Fundraising Act 1991 (NSW).

Commercial Breaches & Governance Conflicts in Partnerships

Litigating Breach of Contract & Brand Damage

When a corporate partner fails to meet its obligations, it can lead to a breach of contract and significant commercial disputes. Although a partnership agreement is designed to provide legal protection, if a partner cannot fulfil its requirements, the outcome may be costly litigation and severe harm to your charity’s brand and reputation.

The consequences of such a breach can be far-reaching for a charity:

Impact Area	Description of Consequence
Beneficiaries	Adverse effects on beneficiaries, who may rely on the services or funding promised by the partner.
Financial Cost	Significant financial cost, not only from the loss of expected support but also from legal fees incurred during a dispute.
Reputation	Damage to your charity’s reputation, which can erode public trust and affect future fundraising and support.
Staff	Negative effects on staff, who may have to manage the fallout from the failed partnership.

To protect against these partnership risks, it is essential to have a formal, written agreement drafted with input from a not-for-profit lawyer. This document should clearly outline:

• Roles of each party
• Responsibilities of each party
• Liabilities of each party

By doing so, you provide a clear framework to manage expectations and establish a legal basis for action if the corporate partnership fails.

Conflicts of Interest & Governance Duties

A conflict of interest arises when the personal interests of a charity’s Responsible Person—or the interests of an organisation they are connected to—clash with their duty to act in the charity’s best interests. In a corporate partnership, this can happen if a representative from the for-profit partner also sits on the charity’s board, creating tension between the partner’s commercial goals and the charity’s purpose.

Under ACNC Governance Standard 5, a charity’s Responsible People must disclose any actual, potential, or perceived conflicts of interest. Failing to manage these situations properly can breach governance duties and undermine the integrity of your organisation’s decision-making process.

These conflicts can manifest in several ways:

Type of Conflict	Description
Actual	A board member is directly influenced by a conflicting interest, such as voting on a contract that benefits their own company.
Potential	A board member could be influenced by a conflicting interest in the future.
Perceived	It could appear to a reasonable person that a board member might be influenced by their personal interests.

Charities must have clear policies for managing conflicts of interest, including maintaining a register of interests. Moreover, any decisions involving a related-party transaction must be transparent and made by those without a conflict, to ensure they are in the charity’s best interests. Seeking legal advice can help establish these governance procedures and ensure compliance with ACNC standards.

Managing Misleading Conduct in Marketing

Collaborative marketing campaigns between a charity and a corporate partner must comply with the Australian Consumer Law, which prohibits misleading or deceptive conduct. This applies to all promotional materials, including:

• Fundraising publications
• Social media posts
• Advertisements related to the corporate partnership

A representation is misleading if it creates a false impression or leads a person into error. To avoid breaching the law, your charity must ensure that all claims about the collaboration are accurate and truthful. It is illegal to make false or misleading statements about:

• The benefits, sponsorship, or approval the partnership provides
• The affiliation between your charity and the corporate partner
• The standard, quality, or value of any goods or services being promoted

For example, an advertisement cannot suggest a corporate partner endorses a specific program if they only provide general funding. Furthermore, if your campaign uses testimonials or endorsements, they must be genuine. If an influencer or celebrity is paid for their endorsement, this relationship must be clearly disclosed to the public. A specialist not-for-profit lawyer can review marketing materials to ensure they meet legal obligations and protect your charity from penalties.

Case Scenarios Involving Intellectual Property & Control Disputes

Disputes Over Intellectual Property Ownership

When a charity and a corporate partner collaborate, they often create new assets, such as logos, software, or campaign materials. Without a clear agreement, disputes can easily arise over who owns this new intellectual property (IP). This ambiguity can lead to costly legal battles and damage the partnership.

Consider a scenario where a charity collaborates with a technology firm to develop a mobile application for its beneficiaries. If the partnership agreement does not explicitly state who owns the resulting software, both organisations might claim ownership, leading to a significant dispute. To prevent such partnership risks, it is crucial to have a formal agreement that addresses intellectual property from the outset.

A comprehensive partnership agreement should clearly define:

IP Clause Component	Purpose / Description
Ownership of New IP	Establishes whether newly created intellectual property will be owned jointly, by the charity, or by the corporate partner.
Licensing Arrangements	Outlines the terms for any license to use intellectual property, including the duration and any restrictions.
Use of Existing IP	Specifies how each partner’s existing logos, trademarks, and brand names can be used during the collaboration.

Seeking legal advice from a not-for-profit lawyer is essential to ensure these terms are documented correctly, protecting your charity’s valuable assets.

Case Study on Value Misalignment & Control

A corporate partnership can pose a significant risk to a charity’s reputation if the partner’s values become incompatible with the charity’s mission. This misalignment can occur unexpectedly, such as when a partner is acquired by another company, forcing the charity to make a difficult decision about continuing the collaboration.

To illustrate, imagine a charity that advocates for victims of violent crime enters into a corporate partnership with a local software company. During a routine due diligence review, the charity discovers that the software company has been purchased by a multinational armaments manufacturer. This new ownership structure creates a direct conflict with the charity’s core values and mission.

In such a situation, continuing the partnership could severely damage the charity’s reputation and erode trust with its supporters and beneficiaries. Therefore, a well-drafted partnership agreement should include:

• Termination Clauses: These allow the charity to end the relationship if a partner’s circumstances change in a way that creates a value misalignment.
• Exit Strategy Provisions: These provide a clear process for dissolving the partnership if necessary.

A not-for-profit lawyer can help your organisation draft these essential protections.

Drafting a Dispute Proof Partnership Agreement for Your Charity

Key Clauses Every Charity Must Include

A formal, written agreement is essential for any corporate partnership to protect your charity by clearly defining the terms of the relationship. This document provides a protective framework, helps prevent misunderstandings, and offers legal recourse if disputes arise.

To ensure clarity and manage expectations, your agreement must outline the following:

Agreement Clause	Purpose
The Partnership’s Aims	Clearly state the goals of the collaboration and the intended benefits for the community your charity serves.
Roles and Responsibilities	Detail the specific obligations of your charity and the contributions expected from the corporate partner.
Payment Schedule	Include a clear schedule for payments to ensure predictable and timely support for financial contributions.
Liability and Warranties	Address potential risks by clarifying each party’s responsibilities in different scenarios for effective risk management.
Dispute Resolution	Establish clear processes for resolving disagreements to avoid costly litigation and preserve the working relationship.

Establishing a Clear Exit Strategy

Planning how a corporate partnership will end should be part of the initial negotiation, not an afterthought. Including a clear exit strategy and termination clauses in your agreement protects your charity from being locked into a collaboration that no longer serves its purpose. This allows your organisation to disengage safely if the partnership fails or new risks emerge.

An effective exit strategy provides a clear framework for winding up the relationship professionally. A partnership may need to end for several reasons, such as:

• The collaboration has successfully achieved its goals.
• A pre-defined time period for the partnership has concluded.
• The partner’s circumstances change, for example, through a takeover or bankruptcy, creating a misalignment of values.
• The original aims of the partnership no longer align with the goals of one or both organisations.

Why You Must Seek Legal Advice from a Not for Profit Lawyer

Before signing any partnership agreement, it is crucial to seek legal advice from a specialist not-for-profit lawyer. These collaborations involve complex legal and regulatory obligations that require expert guidance to manage effectively. A lawyer with experience in the charity sector can help draft a fair agreement that protects your organisation’s interests.

Consulting a legal professional is particularly important for high-value or complex collaborations involving significant funding or the sharing of sensitive data. A specialist lawyer can:

• Identify potential compliance risks.
• Ensure the agreement meets all legal requirements.
• Provide support in navigating any disputes that may arise during the partnership.

This proactive step helps your charity build strong, compliant, and impactful collaborations with confidence.

Conclusion

Corporate collaborations offer charities significant opportunities for growth and impact, but they also present substantial legal risks ranging from regulatory breaches to governance conflicts. To protect your organisation, it is essential to conduct thorough due diligence, manage conflicts of interest, and establish a clear partnership agreement that defines roles, responsibilities, and intellectual property ownership.

For specialised legal advice to ensure your corporate partnership is compliant and successful, contact our not-for-profit lawyers at LawBridge today. Our expert team provides tailored guidance to help you build impactful collaborations that protect your charity’s assets and advance your mission.

Frequently Asked Questions