Charitable Incorporated Organisation
Charities and similar activities are carried on through charitable companies, including the company limited by guarantee, by charitable industrial and provident societies and by innumerable unincorporated groups of people.
The new vehicle for running charities, known as the Charitable Incorporated Organisation (or CIO) should become available next year. This will happen when consultations are complete and the draft regulations and model constitutions have become finalised.
What is the CIO?
The Charitable Incorporated Organisation, or CIO, will be a new legal person or entity separate from its trustees and members.
What are the benefits of using a CIO?
Those operating and participating in the CIO will have a high degree of immunity from personal liability. It is the CIO contracting and dealing with the outside world through the agency of the trustees/ members rather than the trustees/members contracting/ dealing in their personal capacity.
The CIO will be registered under and regulated by only the Charities Act 1993 (as amended by the Charities Act 2003). Currently those seeking to operate a charity with the benefit of limited personal liability must form a company. This entails dual registration and compliance under both the Charities Act 1993 and the Companies Act 2006.
Dual registration means, for example, filing tan annual return to two different authorities. Only one filing - to the Charity Commission - is required if adopting a CIO.
CIOs do not need to prepare a directors' report under the Companies Act 2006, just an annual report under the Charities Act 1993.
The accounting regime in the Charities Act 1993 applies to CIOs and this regime is less onerous than the accounting regime applicable to companies under the Companies Act 2006.
What are the disadvantages of the CIO?
Important decisions of the members, if not formally passed in meeting, require a written resolution signed in the affirmative by all members (100%) - ie one or more members can frustrate this procedure by declining to sign. Members of companies formed under the Companies Act 2006 may pass written resolutions if the requisite majority (usually 51% or 75%) have signed in the affirmative.
How is the CIO to be established?
There are two routes into the CIO. New charities will form the CIO from scratch. The other, for existing charities, is to convert.
The new charity applicant must first apply to the Charity Commission to be registered as a charity using forms CC5a and CC5c. The applicant must show that its objectives are charitable, state how they will be pursued and explain the public benefit.
Once registered the applicant can proceed to form and register the CIO by submitting its constitution and any other information required by the Charity Commission.
(Two model constitutions are contained in the consultation documents for wholesale adoption or remodelling as befits the applicant.)
Common to both formation and conversion is the Charity Commission's right to decline if the name of the charity is (a) the same or too similar to an existing name or (b) likely to mislead the public (eg by suggesting association with government or other institution, or suggesting activities other than those being carried on).
Conversion to CIO
If the charity is incorporated there is no transfer of assets from the existing entity to the CIO (and thus no interference with contacts with third parties). Instead, the entity is simply reregistered as a CIO. If unincorporated the assets must be transferred, a new bank account opened, and so on.
There are other points of detail according to the form of the pre conversion vehicle.