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.