Download Should your Charity beCome a Cio?

IBB SOLICITORS CHARITIES TEAM
Briefing
The recent introduction of the Charitable Incorporated Organisation, or CIO,
provides the opportunity for charity Trustees to consider a new structure that can
reduce the burden of administration and risk to Trustees. The new structure has
been designed specifically with the needs of charities in mind, but will it deliver
all that has been promised? Tim Rutherford, Partner in IBB Solicitors’ Charities
team, sets out the key advantages of the new structure and some advice for
Trustees who may be considering this option.
Should your Charity
become a CIO?
Charitable Trusts
Many charities were originally set up
as unincorporated charitable trusts and
then registered as charities at the Charity
Commission. An unincorporated charitable
trust is essentially an agreement between two
or more people, the Trustees, who agree to
hold certain property on trust to be used for
specific charitable purposes. This is a simple
arrangement, which is easy to manage, and the
rules of the charity are normally set out in a
simple trust deed.
The trust does not have its own legally
recognised identity, leading to drawbacks:
• Trustees are personally liable for any debts
incurred by the charity which exceed its
assets.
• Assets of the charity have to be registered
in individual Trustees’ names, causing
administrative problems when Trustees
change, die or become unable to fulfil their
obligations.
• If a majority of the Trustees are based
overseas, you may find that the charity
becomes subject to overseas jurisdictions.
Incorporation of the
charity
Some charities have already incorporated as a
company limited by guarantee. The company
has its own legal identity separate from the
Trustees.
The Trustees are protected by limited liability
in the event of the company incurring
substantive liabilities, property can be
registered in the name of the company and the
company will always be resident in England
& Wales.
This briefing note is only intended to provide general
guidance and is not intended to constitute legal advice.
IBB SOLICITORS CHARITIES TEAM
Should your charity become a CIO? / 2
So what is the point of a CIO? One drawback
of being a company is that the charity is
regulated by both the Charity Commission
and Companies House, and has to comply
with both organisations’ filing requirements
and regulations.
Charitable Incorporated
Organisations (CIOs)
CIOs are intended to provide the benefits
of incorporation, without the complexity of
having to comply with company law and the
obligations of Companies House.
The key characteristics of CIOs are:
• registered with the Charity Commission
and not Companies House.
• separate legal personality, so can contract
and hold property in own names.
• limited liability for Trustees.
• less onerous reporting and accounting
requirements than a company.
• prescribed model constitutions.
• located in England or Wales (irrespective
of Trustees location).
Converting an existing
charitable trust
Converting an existing charitable trust is not a
case of simply asking the Charity Commission
to change your status. Technically, the CIO
is a new corporate entity, so you need to
establish the new CIO, register it at the Charity
Commission and then transfer the assets and
liabilities of the existing charitable trust across
to the new CIO. The regulations make specific
provision for the transfer of permanent
endowment. Final accounts will then need
to be prepared for the charitable trust and it
will then be dissolved and removed from the
Charity Commission register.
Converting an existing
charitable company
limited by guarantee
It will be possible in due course to convert
an existing company into a CIO, but many
commentators question whether this is a
worthwhile exercise. Unlike Companies
House, the Charity Commission is not
intending to operate a register of charges so
third party funders such as banks may be less
keen to lend to CIOs as they will not have the
same statutory protection that comes from
registering such a charge over the assets of a
company.
If your charity is already established as a
company, then you are likely to be used to
the additional administrative formalities and
be proficient in complying with the company
law obligations. Given that you already have
a well-established structure that provides
limited liability and asset protection, you are
unlikely to find any significant advantage from
converting to a CIO.
Conversion: is it really
worth it?
Although the conversion process may be time
consuming, it is worth considering if you are
currently an unincorporated charitable trust
because:
• it is an opportunity to revisit and refresh
the constitutional governance of the
charity;
• it provides the framework for trustees to
have limited liability;
• it provides for continuity of ownership of
the charity’s assets; and
• it enables the charity to be permanently
based in England or Wales
notwithstanding the introduction of
overseas Trustees.
It is, however, a new type of structure and it
is therefore possible that until the CIOs have
firmly bedded down, teething problems may
be experienced.
What will Trustees need
to do?
The CIO will be a new entity which means
that it will be necessary to change your bank
accounts, update the ownership details of
any investments, advise donors, transfer the
contracts of employees, update details on
websites, notify the appropriate statutory
authorities and so on.
If your charity derives significant income
from donations and legacies, then it will be
necessary to ask donors to update their Gift
Aid Declarations and Wills to refer to the new
CIO as opposed to the old trust.
The CIO will have a new charity number and
therefore all printed material that refers to the
old number will have to be updated. This is
often a hidden cost that is overlooked until the
last minute.
If you or your Trustees would like to
discuss the issues raised by this note
and the potential options for your
charity, please contact:
Tim Rutherford,
Partner,
IBB Solicitors Charities team
01895 207828
[email protected]
This briefing note is only intended
to provide general guidance and
is not intended to constitute
legal advice.
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