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30th October 2023

Setting up a Charity

Amanda Chow

Amanda Chow

Have you ever thought about setting up a charity?

Have you ever thought of setting up a charity to further your values and beliefs by serving local communities and supporting those less fortunate?

Before you act on this desire and become a trustee of a charity, you will need solid advice on how to manage conflicts which may arise in the daily operation of the charity.

This is because the Charity Commission has been strengthening its monitoring work and taking a tougher stance in enforcing the rules.

Nowadays the use of social media has also created a whistleblowing effect which leaves charities with no hiding place for any improper behaviours.

There are two main reasons that trustees may fail to comply

  1. They do not recognise conflict situations.
  2. Even if they are aware of them, they fall short in what they need to do to handle those conflict situations. In many cases, trustees fail to do so because they do not understand how strict the law is.


As a trustee of a charity, you must always act in the best interest of the charity and must not let your personal interests clash.

It does not matter how moral you are. Even if you are acting in good faith and with honesty and the charity has benefited from it, the rules still apply.

They also apply to persons or organisations you are closely related to. This is to ensure that there is no prejudice of charity because of the involvement of them and to prevent any external interest from influencing the decision making.

All trustees have collective responsibility to make sure that conflicts have been avoided or properly handled. Having no control in or no knowledge of the operation cannot be an excuse to discharge the responsibility

Type Of Contract

Financial conflicts

  • Any payment for performing the trustee role (more than the expenses)
  • Employment of or payment to the trustee, or their relative, for some work at the charity, or its trading company
  • Sell, loan or lease charity assets (land or anything else the charity owns) to the trustee
  • Buy, borrow or lease charity assets from the trustee
  • Buy goods from a business owned by the trustee

It still counts as a conflict, even if your charity would get a good deal for its money.

Conflicts of loyalty

  • Dealings with the trustee’s employer
  • Transactions with another charity where the trustee is a trustee
  • Dealings with an organisation that the trustee is appointed as a director / trustee
  • Dealing with the trustee’s relatives and friends

How to Handle Conflict Situations

How can trustees handle conflict situations properly?

The Charity Commission suggests charities to follow Four Steps:

  • Step 1 Declaring Conflicts of Interest
  • Step 2 Consider removing conflicts of interest
  • Step 3 Manage conflicts of interest
  • Step 4 Keep a record of conflicts of interest

For example, in recruitment of trustees:

  • At early stage of recruitment of trustees, applicants should be provided with eligibility requirements and be required to declare before appointment.
  • Charities should not appoint the applicant if the conflicts are too significant. A trustee who is in a conflicted situation is not allowed to involve in decision. For example, a trustee cannot simply resign to take up paid employment without getting Charity Commission’s consent.
  • Don’t forget to record what the conflict was, who or what it affected, when it was declared and how you managed it so as to show that you have acted properly.
  • Trustees are required to confirm eligibility to act every year as personal circumstances may change from time to time.

Consequences of Non Compliance

Trustees may receive official warning or can be removed from position if they fail to obey the rules. They are under a duty to account for any benefit they receive and are personally liable for losses suffered by the charity.

For charities, such scandals will inflict reputational damage which will be very difficult to recover from. It is therefore very important that policies and systems are in place to ensure that conflict situations are properly declared and managed.