As we have mentioned in previous Newsbriefs and E-bulletins, there have been extensive delays in the rolling out of the Charitable Incorporated Organisation (“CIO”).
A CIO is an incorporated form of charity which will only come into existence when registered with the Charity Commission. It is not a company, and therefore will not be required to register with Companies House and although it will have the benefits of incorporation, it will not have to take on some of the burdens such as (in particular) filing with the Companies Registry.
We still not know when it will be possible to register CIOs, as the regulations which will complete the legal framework for CIOs have not yet been debated by Parliament.
Having said that, the guidance does confirm that the implementation of the regulations, once they are approved, will be phased. New organisations will be able to register first, and existing charitable companies being able to convert towards the end of the implementation period.
The Charity Commission has recently published guidance to allow people to look at what becoming a CIO will mean, and to decide if a CIO is the right structure for them to run their organisation.
The main points highlighted in the guidance are:-
CIOs can enter into contracts in their own right and the trustees will normally have limited or no liability for the debts of the CIO.
As against unincorporated structures a CIO will have a legal personality of its own so it can carry on business in its own name rather than the names of the trustees.
It is considered by the Charity Commission that CIOs will be most suitable for small to medium sized organisations which employ staff and enter into contracts.
Although CIOs will not have to register with Companies House, they will have to register with the Charity Commission and will have to submit accounts and annual returns to the Commission and keep registers of members and trustees. This is irrespective of the income of the CIO.
All CIOs must have members and charity trustees. In the case of smaller CIOs these may be the same individuals, or there may be a wider membership made up of people who are not charity trustees.
It will not be possible for existing unincorporated associations to convert to CIOs. If they want to do so, they will need to register a CIO, transfer the assets and undertakings to the CIO and settle the liabilities, and dissolve the unincorporated charity in accordance with its’ governing document.
Unincorporated charities with permanent endowments may need to make vesting declarations to transfer the property to the CIO. Unincorporated charities with defined benefit pension schemes will also need to consider if the transfer to a CIO will be regarded as a cessation event by the pension regulator.
It will be possible for existing charitable companies to convert to CIOs under the Charities Act 2006. The process should be relatively straightforward, and will not affect the legal personality of the organisation.
A Community Interest Companies will also be able to convert to a CIO under the Charities Act 2006. However, further regulations need to be made before it is clear exactly how this conversion process will operate.
Industrial and Provident Societies will only be able to convert to CIOs once their exempt status is removed. However, once again further regulations are needed before it is clear how this conversion process will operate.
Included with the guidance are two model constitutions: a foundation model for those wishing to register a CIO whose only voting members will be the charity trustees (good for charities run by a small group that make the key decisions); and an association model for charities which will have a wider membership which includes voting members other than the trustees (appropriate for larger organisations with a wider voting membership).
The draft regulations specify that a CIO must have a constitution in the form prescribed by the Charity Commission, or as near to that as circumstances allow. Therefore, in order to register a CIO it is recommended that one of the model constitutions is used, as it will ensure that the requirements of the law are met and that good practice is observed.
The Charity Commission expects that any amendments to the draft regulations when they are debated in Parliament will be minor. Once the regulations have been approved, the Office of Civil Society will be responsible for publishing a timetable for their implementation.
For a no-obligation chat, more information or advice on Charitable Incorporated Organisations, please contact Mark Lewis on 01926 880700 or email him here.
