Legal

CIOs are here at last

17 December 2012

The Charitable Incorporated Organisation (CIO) is a new legal form for charities. It was introduced in the Charities Act 2006 but implementation has been delayed while a raft of statutory instruments were introduced to set out the detail of how they will work. Thea Longley, partner at London-based legal film Bates Wells & Braithwaite explains the ins and outs

The Charity Commission finally started accepting registrations for new CIOs on the 10 December and we expect the first ones to be registered around 3 January 2013. However the wait isn’t over for everyone, as the Charity Commission, worried about a deluge of new applications, is asking people to follow an informal protocol that staggers CIO registrations for existing charities.

So what is all the excitement about? Essentially, the CIO is a bespoke incorporated legal form for charities. Many charities set up as trusts or unincorporated associations look to incorporate to better protect trustees against personal liability to third parties for the debts of the charity. The most common way for a charity to incorporate is using a company limited by guarantee. This means complying with dual regulation from the Charity Commission and Companies House; which some may find burdensome. It also means compliance with the Companies Act when it comes to the organisation of members meetings, for example. The CIO only has to register with the Charity Commission, so has one regulator, which it is hoped will cut down on red-tape for trustees.

However, the CIO may not be right for every charity. As yet they are untested and for this reason some organisations may wish to wait and see how they “bed down” before converting.

Like a charitable company, a CIO must have both trustees and members. The Charity Commission had produced two model documents: One where the trustees and members are the same people “the Foundation CIO” and one where the CIO had a wider membership “the Association CIO”.

The CIO has a few quirks. For example, in terms of decision making by members (rather than trustees) there are potentially fewer rights for CIO members than members of a charitable company. Companies legislation provides members with the right to call meetings, vote by proxy, demand a poll and remove a trustee; a member of a CIO will have none of those rights unless the constitution expressly provides them. Similarly, whilst a company can change its constitution with a written members resolution of 75%, a written resolution for a CIO must be unanimous.

As mentioned above, the Charity Commission are asking everyone to help them manage new registrations by abiding by the following timetable:

Initially Only “brand new” charities
 
From 1 March 2013    Unincorporated Charities with income of over £250,000
 
From 1 May 2013 Unincorporated charities with income of over £100,000
 
From 1 July 2013 Unincorporated charities with income of over £25,000
 
From 1 October 2013 Unincorporated charities with income of over £5,000 
 
From 1 January 2014 All unincorporated charities
 

It is envisaged that charitable companies will be able to convert to CIO’s using a simple statutory conversion process. However this is not likely to be available until 2014 at the earliest as there is still more detail to work out in relation to how this will work.

I would advise charities already set up as companies limited by guarantee to wait and see, you can’t transfer to a CIO until 2014 in any event. For larger new or unincorporated charities looking to incorporate it might be best to wait and see how the CIO performs in practice. What is clear is that for smaller uncomplicated charities this provides an exciting new option when you are setting up or incorporating.
 

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Thea Longley

Thea Longley is a partner in the Charity and Social Enterprise Department at charity law firm Bates Wells & Braithwaite. Thea advises a wide range of charities, social enterprises and not for profit organisations – both large and small. She specialises particularly in formation/start-ups, constitutional advice, governance reviews, restructuring and mergers. She also has wide experience advising on contracts, grant agreements, fundraising and funding. Thea is a committee member of the Charity Law Association. She writes and lectures widely on legal issues affecting charities. Thea can be contacted on t.longley@bwbllp.com and you can see more details about the wide range of legal services BWB offers at www.bwbllp.com

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