Charitable Incorporated Organisations
The Charitable Incorporated Organisation (“CIO”) was created in response to requests from charities for a new structure. Members of our Charities Group are currently setting up a CIO for a client.
What is a CIO?
The CIO is a new legal form for a charity, which retains some of the benefits of being a company but also removes some of the burdens.
A CIO is not regulated by company law and is not a company. A CIO, therefore, will not be required to register with Companies House. A CIO is regulated by charity law and must be registered with the Charity Commission. When the Charity Commission accepts the registration of a charity as a CIO, the charity’s details are entered in the Register of Charities.
Why set up a CIO?
The CIO will have its own legal personality, allowing it to enter into contracts in its own right, rather than in the names of trustees.
The trustees of a CIO will in most cases have limited or no liability for the debts of a CIO, consequently, affording them a safeguard from the financial liabilities the charity incurs, in a way that is not possible for trustees of a charitable trust.
The reporting and accounting requirements for a CIO are less onerous than for a charity in the form of a company. The Charity Commission does not, and there are not currently plans to, charge for registration or the filing of information, unlike Companies House.
Is a CIO right for my charity?
The Charity Commission believe that CIOs will be most suitable for small to medium-sized organisations which enter into contracts and/or employ staff.
The establishment and running of a CIO should be more straightforward than for a charitable company because there will be no requirement for compliance with Companies House formalities. However, running a CIO will involve slightly more formality than running a charitable trust or unincorporated association.How is a CIO set up?
A CIO must be registered with the Charity Commission, regardless of the charity’s income.
An exempt charity cannot become a CIO.
If conducting the charity in England and Wales, the CIO will be required to have a registered principal office located in England or Wales. The address of the principal office will appear on the Register of Charities. The position in Scotland is outside the scope of this briefing.
A CIO must submit an annual return to the Charity Commission. The annual return is in essence a snap shot report of the CIO’s composition and registered addresses.
A CIO must also submit annual accounts. Where a CIO has a gross annual income of over £250,000, “accruals basis” accounts must be prepared but where a CIO has a gross annual income of £250,000 or less they may prepare accounts on the “receipts and payments” basis.
Regardless of the charity’s level of income, the accounts and annual return must be sent to the Charity Commission within 10 months after the end of the financial year.
The governing document for a CIO will be a constitution. This constitution must contain certain provisions required by the Charity Commission. Amendments to the constitution must be registered with the Charity Commission or they will not be valid and there are certain amendments that will require prior consent from the Charity Commission. Helpfully, the Charity Commission has produced simple constitutions though they may need amendment for a CIO in particular circumstances.
Members and Trustees
A CIO must have both members and charity trustees. The same individuals can act as both members and charity trustees or, where a wider membership is appropriate for the aims of the charity, people other than the charity trustees may be members as well.
The Charity Commission recommends a minimum of three trustees and a maximum of 12 trustees, where individuals are acting as trustees. For good practice, a CIO should have enough charity trustees to enable the trustees’ duties to be carried out effectively, but not too many trustees where meetings become cumbersome or impractical.
A register of the members and a register of the trustees must be kept. The register of trustees should be made available to anyone who requests it.
Trustees and members must also provide a service address to which correspondence relating to the CIO can be sent.
Generally the Charity Commission will accept any name for a charity provided that it is not misleading or offensive. The name must not be too similar to the name of an existing charity unless the CIO is replacing that charity.
Converting your existing charity
An existing charitable trust or charitable unincorporated association may convert (or, more accurately, transfer) to a CIO. There are a number of steps which need to be taken including:
- Register the new CIO with the Charity Commission;
- Transfer the assets and undertaking of the unincorporated charity to the CIO;
- Settle any liabilities;
- Dissolve the unincorporated charity according to its governing document; and
- Apply to the Charity Commission to have the unincorporated charity removed from the Register of Charities.
Care needs to be taken with any property or pension scheme held by the unincorporated charity. As the CIO will be a new legal entity banks, funders and suppliers must be informed of the changes and formal steps, with agreement of other parties, may be needed to transfer contracts and other agreements to the CIO.
The current legislation includes provisions for existing charitable companies, charitable industrial and provident societies and community interest companies to convert to CIOs, but those provisions are not currently in force. The aim is that such conversions will become possible during 2014.
The Charity Commission timetable for implementation
From 10 December 2012, the Charity Commission started accepting applications to set up CIOs from brand new charities with an anticipated annual income of over £5,000.
The Charity Commission began entering CIOs on the Register of Charities from 3 January 2013.
The table below sets out the dates for implementation:
|Date||Applications for CIO|
|1 March 2013||Window opened for existing unincorporated charities with an annual income of over £250,000 to set up a CIO and transfer assets into it.|
|1 May 2013||Window opened for existing unincorporated charities with an annual income between £100,000 and £250,000 to set up a CIO and transfer assets into it.|
|1 July 2013||Window opens for existing unincorporated charities with an annual income between £25,000 and £100,000 to set up a CIO and transfer assets into it.|
|1 January 2014||Window opens for existing unincorporated charities with an annual income of less than £5,000 to set up a CIO and transfer assets into it.
Window opens for brand new charities with an anticipated income of less than £5,000 to set up a CIO
|During 2014||Window opens for corporate conversion to CIOs, subject to Parliamentary approval of separate conversion regulations to be made during 2013. These conversions may also be introduced in phases according to income bracket.|
How can we help?
The Charity Commission are unable give advice to organisations on the correct structure for your charity. We have an experienced Charities Group and, as mentioned above, are currently setting up a CIO, so we are able to assist and advise by providing full information and options as to the best vehicle through which to run your charity.
The law in this note is stated as at June 2013.
For further information please contact:
t: 0207 227 7241
t: 0207 227 7329
This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.