Out-Law / Your Daily Need-To-Know

Out-Law Guide 4 min. read

Political activities, donations, and expenditure of UK companies

UK companies need to monitor their political engagement activities carefully, because they may fall within the broad legal definitions of political expenditure and political donations, and therefore be subject to shareholder approval controls.

The rules governing this area in the UK are set out in Part 14 of the Companies Act 2006 and Part 2 of the Political Parties, Elections and Referendums Act 2000, as they apply to companies incorporated in the UK under the Companies Act. The Electoral Commission has also published guidance on political donations, though this is aimed at political parties rather than companies or others.

What constitutes a political donation?

It is not only a gift of money to a political party that constitutes a political donation. It may include some sponsorship payments to a political party, or payments to cover their expenses. Even where no money changes hands, the broad definition of a political donation includes providing any property, services or facilities for the use or benefit of the party, unless provided on commercial terms.

Small donations of less than £500 fall outside the definition of a political donation. To verify whether  a donation falls within this exception where the donation is in the form of free property, services or facilities, it is necessary to determine the value of the property, services or facilities provided. A company may make a series of small donations which exceed £500 in total but which do not individually or collectively amount to a political donation. However, it is a criminal offence to conceal or disguise a political donation by deliberately splitting it into a series of smaller gifts, or in any other way.

Does the law only apply to donations made directly to a party?

The law covers donations not only if they are made to a political party, but also to any officer or agent of a party. It also includes donations made indirectly through a third person. A donation to a political organisation such as a think tank is also regulated, if the organisation can be reasonably regarded as carrying our activities intended to affect public support for a political party.

What constitutes ‘political expenditure’?

If a payment is made to support a political party and it does not meet the criteria to be a political donation, it is still necessary to consider if the payment amounts to political expenditure. Political expenditure is more narrowly defined, and covers other payments made by a company for advertising or other publicity material that can be reasonably regarded as intended to affect public support for a political party. In contrast to the definition of political donations, political expenditure always involves some form of payment. Even small payments below £500 may fall within this definition of political expenditure.

How does this relate to a company’s political engagement activities?

If a company supports a political party by donating a sum of money over £500, or by hosting or otherwise covering the cost of a fundraising dinner for the party, this would typically constitute a political donation. Other political engagement activities may also amount to a political donation, even if a company is operating a policy of political neutrality and is motivated by commercial objectives in its actions. Examples may include:

  • sponsorship payments for advertising in a party’s event or publication;
  • discounted professional services provided to a party;
  • discounted office or event space provided to a party.

The legislation is less clear on whether some other political engagement activities typically carried out by many politically neutral companies should also be considered as political donations.

For example, a professional services company may, as part of a series of seminars for its clients, arrange an event at which a spokesperson for a political party is invited to present and explain the party’s policy on a particular matter. This is unlikely to meet the criteria for a political donation, but it cannot be ruled out that it amounts to providing ‘facilities for the benefit of a party’, in that it offers the party a platform to win over potential voters. On the other hand, such an event would be more likely to meet the criteria of being to the party’s benefit if it were a larger event open to members of the public or attracted significant media coverage.

Do the same rules apply for activities at party conferences?

There are some specific rules about activities and payments in relation to party conferences. The simple payment of an admission fee for a conference does not constitute a political donation. Whilst sponsorship payments by a company for advertising at a conference are generally treated as donations – see above – there is an exception where they are payments for a physical stand or digital stand meeting the criteria in the Electoral Commission’s guidance. This applies to payments of up to £15,000, excluding VAT, for a three metres by three metres physical stand, or payments of up to £7,000, excluding VAT, for a digital stand.

Is shareholder approval needed?

If a company wishes to make political donations totalling more than £5,000 or political expenditure of any amount in a 12-month period, this must have been approved previously by shareholders through an ordinary resolution. There are special rules for company groups, which generally require that a parent company’s shareholders must also approve political donations or expenditure by a subsidiary.

The resolution must take a particular form. It should approve donations or expenditure for a four-year period, unless the company’s articles or directors determine a shorter period. For specified categories, the resolution must set a maximum cap. The resolution cannot approve specific individual donations or expenditure.

What practical steps should a company take?

Given the broad legal definitions of political expenditure and political donations, it is important for companies to monitor their political engagement activities carefully, even if they operate a policy of political neutrality. Where activities on which the law is less clear are involved, a company will need to conduct a risk-based assessment of the activity against the criteria in the legislation, to determine if it should be treated as a political donation. Where an activity or discounted service is considered a political donation, a company needs to determine its value accurately.

Given the lack of clarity in this area of law, it is often prudent for a company to have a ‘precautionary resolution’ in place, providing the necessary shareholder approval up to a specified limit for a given period, in the event that some of the company’s political engagement activities do constitute political donations. A company then needs to track its activities and their value, to ensure it does not exceed the cap set over the lifetime of the resolution.

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