Charitable Incorporated Organisations (CIO's)

What is a Charitable Incorporated Organisation (CIO)?

Historically, in order to gain the protection of limited liability, many organisations have chosen to register as a charity and additionally as a limited company. This can be a slow and time-consuming process involving initial registration as a company with Companies House and as a charity with The Charity Commission; and on-going regulation and accounting requirements from both bodies. There are a number of additional conflicts between charity and company law (particularly around the rights and responsibilities of the board), and it is not always clear which set of regulations take precedence.


The CIO is a new legal form designed specifically for charities. The structure aims to provide charities with some of the benefits of being a company, without the additional reporting and legal requirements which incorporated charities may be subject to. A CIO:

  • Is an incorporated form of a charity, and not a company;
  • Is only created once it is registered by the Charity Commission, but does not need to register separately with Companies House;
  • Is required to provide a single annual report and annual return to the Commission, with no requirement to produce a director’s report or an annual return to Companies House;
  • Can register and file information free of charge (unlike the requirement to pay certain fees to Companies House both on registration and on filing of information);
  • Must include certain provisions from one of the two model constitutions produced by the Charity Commission. These are the ‘association model’, where the members are not necessarily trustees and the ‘the foundation model’ where the only members are the trustees;
  • Will need to register amendments to their constitutions with the Commission before they are implemented, and will require prior consent for some amendments; Is covered by insolvency law;
  • Can enter into contracts in its own right, and its trustees will have limited or no liability for debts;
  • Has a minimum age of 16 for trustees (although individual CIOs can set this at a higher age);
  • Does not (unlike a company) give members a statutory right to require a general meeting to be called, demand a poll (a counted vote), vote by proxy and remove trustees. If these members' rights are to exist, they must be included in the constitution (these are included in the association model constitution)

 


Should our organisation set up as/become a CIO?

The regulator is reminding those considering setting up a new charity that the CIO structure will not be suitable for all. The Commission is urging those thinking about applying to register a CIO to consider carefully information available on the Commission's website before starting their online application as the CIO model will not be the best solution for every organisation.

The Commission says CIOs will be most beneficial for small to medium sized charities which employ staff or enter into contracts. While running a CIO should be simpler than establishing a charitable company, it will not be as straightforward as running an unincorporated association or trust.

Advantages

  • The organisation will not have to be monitored by the Charity Commission and Companies House simultaneously;
  • The organisation will only have to provide one copy of their accounts, reports etc.;
  • No longer a conflict between directors’ and trustees’ duties;
  • Members, not just the trustees, have a duty to act in the best interests of the CIO;
  • Trustees and Members will have limited liability;
  • A CIO set up by a new or unincorporated charity can choose whether or not to have a ‘guarantee’ (ie a sum which members will be liable for, usually £1/£10). Charitable companies converting to CIO status will also be able to remove the guarantee if it was previous £10 or under;
  • The register of members will not have to be open to the public, unlike that of a company;
  • Members and Trustees both have a duty to further the purposes of the CIO, rather than just trustees;
  • The organisation has a separate legal personality so can enter into contracts and hold land in its own right;
  • The register of members does not have to be available to the public;
  • The requirement to use a model constitution may offer less possibility for CIO founders to make errors or omissions when drafting their constitution;

Disadvantages

  • It is a new legal form which may face ‘teething problems’ or have difficulty gaining widespread recognition;
  • You will generally be expected to use the model articles without deviating from them;
  • CIOs will have to register and submit annual accounts regardless of income level (even if income is less than £5,000);
  • All CIOs will need to register, even where they would usually be exempt from registration with the Charity Commission;
  • It is estimated that it will take around two months to register a CIO (assuming you use model documents) so it is not particularly quick to set up and the organisation will not exist until it is registered;
  • Although the ‘association’ model constitution includes provision for unincorporated organisations to be members of an ‘umbrella’ CIO body, this will require the appointment of an individual or corporate body to represent the unincorporated organisation. Having the organisation directly become a member in its own right is probably not legally valid;
  • CIOs are required to hold an AGM each year, whereas a charitable company can choose whether or not to include that requirement in their Articles of Association;
  • Less rights for members (although you might consider this an advantage) to require a general meeting, a poll at a general meeting, or to remove a trustee;
  • Needs 100% approval for written special resolutions;
  • May be problems in borrowing money using property as security as the Charity Commission will not keep a register of charges on charitable assets;

Timescales:

  • The CIO is being phased in over 2013, with the CIO register opening on January 3rd. However the Charity Commission began considering online applications for new charities with incomes of over £5,000 on 10th December 2012. Applications for existing unincorporated charities wishing to transfer their assets into a CIO will be accepted according to the following timetable2:
  • Existing unincorporated charities with annual incomes of over £250,000 - from March 2013;
  • Existing unincorporated charities with annual incomes from £100,000 to £250,000 - from May 2013;
  • Existing unincorporated charities with annual incomes from £25,000 to £100,000 - from July 2013;
  • Existing unincorporated charities with annual incomes from £5,000 to £25,000 - from Oct 2013;
  • Existing unincorporated or new charities with an annual income of under £5,000 – from Jan 2014;
  • In due course existing charitable companies, charitable industrial and provident societies and community interest companies will be able to convert to CIOs if they choose. This will not happen until 2014 at the earliest.