Charitable Status Simplified - CIOs

The Charity Commission and the Office of the Third Sector have recently published the long awaited consultation paper in relation to Charitable Incorporated Organisations (“CIO”).

Existing methods of forming a charity

There are three existing charity structures available:

1. An unincorporated association
2. A trust
3. A company limited by guarantee

Limited liability and the ability to hold property means that companies limited by guarantee are becoming increasingly popular. The CIO is an alternative means of incorporation.

What is a CIO?

It is a new corporate structure, registered and regulated by the Charity Commission, which specifically applies to charities. It is an alternative to incorporation under the Companies Acts and does not require regulation under both company law and charity law.

The advantages of a CIO

1. It only needs to be registered with the Charities Commission and not the Companies Registry
2. The reporting requirements are straightforward: only an annual report is required, not a directors’ report
3. One annual return only is required (currently charitable companies have to file annual returns to both the Charity Commission and the Companies Registry)
4. The filing requirements are also more straightforward as accounts and other returns will have to be filed with the Charity Commission only, not with the Companies Registry

How to become a CIO

There are a variety of routes which are available, as follows:

1. Setting up as a CIO from scratch
2. Converting an existing charitable company using the procedure set out in the legislation
3. Transferring the assets and liabilities of a trust or unincorporated association to the newly formed CIO - in the case of trusts and unincorporated associations there is no automatic conversion mechanism

The disadvantages of a CIO

1. It is likely that more information will need to be made publicly available than with unincorporated charities
2. Unincorporated associations and trusts are simpler to set up
3. Third parties, such as funders, will be less familiar with CIOs than companies
4. All CIOs will have to submit their accounts and annual returns even if their income is less than £10,000 per annum, which is not the case with other charities

Consultation issues

The Charity Commission and the Office of the Third Sector are consulting in relation to a number of issues which are yet to be finalised, these include:

1. The minimum age to be a charity trustee
2. The relevant duty of care which should apply to charity trustees of a CIO
3. How to deal with decision making when charity trustees may benefit
4. The requirement to maintain registers
5. How information is made available by the Commission to the public
6. The procedures for amending constitution documentation
7. Accounting provisions

Conclusion

It is expected that the consultation exercise will be completed by March 2009, with regulations laid before parliament by the summer and these coming into force by the end of 2009.

We believe that many charities will be interested in the simplicity of the model afforded by the CIO and that the straightforward method of converting will prove attractive.

We are keeping a very close eye on developments and will be advising our charitable clients on the best way forward so that those wishing to convert can do so quickly and efficiently.

April 2009