Corporate form for charities, the Charitable Incorporated Organisation (CIO)

Corporate form for charities, the Charitable Incorporated Organisation (CIO)

1.   What are Charitable Incorporated Organisations (ClOs)?

A CIO is a new corporate structure specifically for charities. It was introduced by the Charities Act 2006 and will be regulated only by the Charity Commission. A CIO must be registered with the Charity Commission and only comes into existence once it has been registered with them. The CIO offers charities an alternative to incorporation under company law, and will not require "dual regulation" by the Commission and Companies House.

2.   The Consultation process and timetable

The Consultation is being carried out jointly by the Charity Commission and the Office of the Third Sector, which is part of the Cabinet Office. To obtain a free copy call 0845 300 0218 and quote URN 08/Z2 and the title as given in the heading above or from the website: www.cabinetoffice.gov.uk/thirdsector. If downloading from the website Appendices A, B, C, F, H can be ignored.

3.   The Benefits and Obligations of the CIO Structure

Setting a charity up as a CIO will have a number of benefits over setting it up as a charitable company. For example, simpler registration, reporting and filing requirements, lower costs and greater constitutional flexibility.

The key benefit of setting up a CIO will be the protection from personal financial liability incurred by the charity, which incorporation provides. However, an unincorporated association (such as the standard village hall model) will remain simpler to set up and run. ClOs will need to keep a register of charity trustees and members and make it available for inspection as well as submit accounts and annual returns regardless of income. It will be a less flexible constitutional form.

4.   The Consultation questions

The consultation explains that "the challenge is to achieve both administrative ease for charities and sufficient accountability to encourage public trust and the confidence of those who will deal with ClOs". The aim is to give opportunity to comment on the proposed Regulations and model constitutions that will provide the framework for running a CIO. There are specific questions, which touch on the balance between ease of administration and accountability, but other issues can be raised.

5. Consultation points to note and suggested areas for comment

a)  The CIO structure appears to be more tied into "company regulation"
instead of "charity regulation"

More thought is needed regarding the costs for smaller charities converting, which this structure is intended to provide for.

b)  Problems with Conversion

Charitable companies and IPSs (Industrial and Provident Societies) will be able to convert. However, an unincorporated association CANNOT convert: a new CIO has to be set up and the charity's assets transferred into this, then the old charity wound up. A NEW charity registration number will be needed and funders and other bodies informed. There will be power to amalgamate and dissolve ClOs.

c)  Trustees

Failure to comply with the duty to maintain a register of trustees, including specified information, is a criminal offence. It is proposed that trustees may be 16+ yrs old, the aim being to encourage young people to take responsibility and align with company law. Question 1 asks what the minimum age should be and Question 4 about the register.

d)  The Duty of Care of CIO trustees

The aim is for this to be lower than for a company, subject to a minimum. The general duty of care is given in the 1993 Act (as amended) and will be set out in each ClO's constitution. Question 2 asks whether the standards proposed are sufficient

e)  Sole Trusteeship

It will be possible to have a sole trustee (an individual or a body). A minimum of 2 is recommended.

f)   Organisations which are members of ClOs and representatives

Some Unincorporated Associations have organisations as members, and this will pose a problem. Representatives of organisations can be appointed. Response to the consultation will be needed to argue for CIO umbrella bodies being able to have UA/CIO members. A possible problem arising from this is the automatic transfer of trusteeship by appointing organisations of their representation from one nominee to another. It is not clear whether a CIO can have a trust subsidiary. Question 12 asks whether a body without legal personality should be able to become a member of a CIO and, if so, how could the obligations be enforced?

g)   Costs of setting up

There will be no Charity Commission charges for setting up a CIO but there will be administration and professional costs (e.g. accounts) and possibly charges from Companies House for those charitable companies converting.

h) Accounts

Question 15 asks whether all ClOs should have to produce accruals accounts, which is the regime for charitable companies, or whether it should depend on their level of income, as for non - company charities.