Charitable Incorporated Organisations

In the Spring of 2011 a new type of Charitable Company becomes available it is called a Charitable incorporated Orqanisation (CIO)

What is a CIO and why is it being introduced?

The Charitable Incorporated Organisation (CIO) is a new corporate structure designed specifically for charities.

Increasingly, charities have been choosing to adopt a corporate structure because this can offer several benefits over unincorporated structures. These benefits include:

• the members and trustees are usually personally safeguarded from the financial liabilities the charity incurs, which is not normally the case for unincorporated charities
• the charity has a legal personality of its own, enabling it to conduct business in its own name, rather than the name of its trustees

Most charities that currently opt for a corporate structure set up as a company limited by guarantee under company law. This means that they are subject to dual regulation by the Charity Commission and Companies House. In light of this, many in the charitable sector have long expressed a desire for a corporate structure designed to meet the needs of charities.

When will the CIO structure be available for charities?

The aim is for the legislation to be taken forward as soon as possible in the new Parliamentary session. The CIO is, therefore, expected to be an option available for charities in late spring 2011. The introduction of the new model will be phased in to manage what we expect will be high demand by charities.

The Charities Act 2006 sets out the broad legal framework for ClOs but secondary legislation is required to provide the detail on how ClOs will be established and operated. To do this, the Minister for the Cabinet Office is responsible for three sets of Regulations: the General Regulations; the Insolvency and Dissolution Regulations and the Charity Tribunal (Amendment Order).

A Consultation was held in September 2008 to give the public the opportunity to comment on the proposed Regulations and draft model constitutions for ClOs. A Summary of Consultation Responses and Next Steps is available on the Cabinet Office's website.

At the end of the Consultation, it was hoped that the implementation of the CIO provisions would be due to start in late spring 2010. However, there was insufficient time for the outstanding issues to be resolved and for the legislation to go through Parliament in the 2009-10 session and this is why it is now expected to be available from late spring 2011.

How will a CIO be different from other charities?

Some of the key differences between a CIO and other types of charities will be that:

• a CIO only comes into existence once it is registered with the Commission
• there is no minimum income registration threshold for CIOs
• all ClOs will have to submit accounts and annual returns to the Commission regardless of income
• CIOs will have to comply with the other additional responsibilities outlined in the Charities Act 2006 and the CIO Regulations

We want to set up a new charity, how do we decide what is the right structure for us?

If you are considering setting up a charity it is worth thinking about what is the most appropriate structure for the charity. Do you want it to be an incorporated or an unincorporated charity? Our publication Choosing and preparing a governing document (CC22) provides information on the current structures open to charities.

We are a charitable company and we want to convert to a CIO structure. How do we do this?

The Charities Act 2006 contains provisions to enable existing charitable companies and charitable industrial and provident societies to convert to ClOs. The new CIO will not be a new corporate body to which the undertaking of the company or industrial and provident society is transferred. The existing corporate body is simply re-registered as a CIO and the conversion process will not affect the legal personality of the organisation or its business relationships.

We are a community interest company but want to become a charity. How do we do this?

You will be able to convert directly into either a charitable company or a CIO.

We are an unincorporated association and we want to change our structure to a CIO. How do we do this?

The procedure that you will need to follow will be similar to that of an unincorporated charity that wants to change to a charitable company. You will firstly need to register the new CIO with the Commission and then wind up the existing unincorporated charity, in accordance with the provisions of the governing document. Once all the assets of the unincorporated charity have been transferred to the CIO, you must notify us and we will remove the unincorporated charity from the Central Register of Charities.

As the CIO will be a new legal entity it will have a new registered charity number and you will need to inform banks, funders and suppliers of the transfer. You will need to ensure that any existing contracts are assigned to the CIO.

If the charity has a defined benefit pension scheme it is likely that the transfer to the CIO may be regarded as a notifiable event by the Pensions Regulator. More information on this is included in our guidance on Defined Benefit Pensions Schemes.

What other information and guidance will be available?

We will be producing detailed guidance which will include how to set up a CIO; the process for a charitable company or charitable industrial and provident society to convert to a CIO; and the process for an unincorporated association to change to a CIO structure.

For more information please contact Graham Stephens: graham@fcls.co.uk.