guidance on Charitable Incorporated Organisations
what is a Charitable Incorporated Organisation (CIO)?
A CIO is a new type of legal structure for a charity which
provides charities with a viable alternative to a company limited
by guarantee. A CIO's main features are that it has a constitution
and it is a separate legal entity to its trustees. It is
incorporated but is only required to register with the Charity
Commission and not with Companies House as well. All CIOs must
register with the Commission regardless of their income. This
requirement of registration means that exempt charities cannot
become CIOs.
The structure was developed for charities who wanted to benefit
from limited liability for their trustees but without the burden of
registering with both the Commission and Companies House.
There are two models available to charities:
- foundation model: this is aimed
at small charities as the trustees automatically become members.
You cannot be a member if you are not a trustee.
- association model: this is aimed
at larger charities that have a wider voting membership. They will
have members who are not trustees.
what are the advantages of a CIO?
The main advantages of becoming a CIO are as follows:
- the trustees will benefit from the protection of limited
liability – this will be a huge advantage to those charities that
are currently unincorporated associations;
- charities can enter into contracts and hold property in their
own names rather than in those of their trustees;
- charities will only have to register with the Charity
Commission and will not be burdened with the regulation of
Companies House;
- this also means that charities will only have to prepare and
submit accounts to the Charity Commission; and
- there is no charge for filing documents with the Charity
Commission unlike when companies are required to file documents
with Companies House.
what are the drawbacks of a CIO?
The main drawbacks to becoming a CIO are as follows:
- there are no provisions for CIOs to offer debentures or secured
charges – therefore it seems that it will be an unsuitable vehicle
for larger organisations with significant assets;
- charitable status is necessary to be registered as a CIO – if
the CIO stops being charitable then it will cease to exist – this
is in contrast to a charity currently set up as an incorporated
company; and
- it is a new entity and so it will take a while for the law
governing CIOs to evolve – this could lead to uncertainty in the
immediate future.
is a CIO a suitable model for your organisation?
It has been recommended that CIOs are most suitable for small to
medium organisations. It will be appropriate for those
organisations who wish to be incorporated but would like simpler
filing requirements then those requested by Companies House.
Becoming a CIO will benefit your organisation if you employ
staff and / or enter into contracts and /or own property. It will
enable you to do these things in the name of the charity rather
than in the names of the trustees without the burdensome filing
requirements that come with being a company limited by
guarantee.
However, if you want to raise funds via debentures or a mortgage
then it is not the vehicle for you. For larger organisations and
those who wish to raise funds in this way, a company limited by
guarantee is still the recommended entity.
becoming a CIO
The route which your organisation will take to becoming a CIO
will depend upon your starting point. There are four different
options:
- forming a completely new organisation as
a CIO: In order to start a CIO from scratch, your
organisation will need to choose one of the Charity Commission's
model constitutions and then apply in the usual way to become a
charity. Once you are registered as a charity then you can apply to
be a CIO by supplying the Commission with a copy of the proposed
constitution and any other documents required by the
Regulations.
- converting an unincorporated association
to a CIO: There is currently no formal conversion process
for an unincorporated association which wishes to become a CIO. You
must set up and register a new CIO and then transfer all the
property and the assets of the association over to the new
CIO.
- converting an existing corporate body to
a CIO: Converting from an existing corporate body is fairly
straightforward as long as you are not an exempt charity. You will
simply have to re-register as a CIO with a new constitution which
follows one of the Commission's model constitutions.
- converting a Community Interest Company
('CIC') to a CIO: A CIC can only convert to a CIO if its
shares are fully paid up. The CIC must register as a charity with
the Charity Commission and then must supply the Commission with the
proposed new constitution and the resolutions authorising the
conversion and adopting the new constitution.
