What is a Charitable Incorporated Organisation (“CIO”)?

 

The Charity commission has started to accept applications from charities wishing to be set up as a CIO. For the time being only brand new charities will be able to apply, but existing charities will be able to adopt this structure in due course.

 

What is a CIO?

 

A Charitable Incorporated Organisation is a new legal structure designed specifically for charities. Incorporation offers significant advantages, such as limited liability for trustees. CIOs will be subject to charity law and regulation by the Charity Commission only, unlike charities which are limited by guarantee who suffer from dual regulation from both the Charity Commission and Companies House.

 

A CIO is brought into existence when it is registered with the Charity Commission. Each CIO will be governed by a constitution which is intended to be simpler than the Articles of Association used by companies limited by guarantee. Model constitutions have already been provided by the Charity Commission and are designed to be easily understood by charity trustees, members and employees. A CIO must have one or more members who can either be the same people as the trustees or can comprise a much wider body.

 

Can you apply to convert an existing charity?

 

Applications are currently open to brand new charities wanting to set up as a CIO. A timetable for applications from existing unincorporated charities has been announced. There are also plans to allow existing incorporated charities to convert to CIO status, however, further Statutory Instruments will need to first be drawn up and approved by Parliament, which is not anticipated until 2014.

 

Indicative timetable (may be adjusted according to the volume of applications received)

 

Opening date for applications Who may apply?
10 December 2012 Brand new charities with anticipated annual income over £5,000
Late March 2013 Existing unincorporated charities with annual income over £250,000
May 2013 Existing unincorporated charities with annual income between £100,000 & £250,000
July 2013 Existing unincorporated charities with annual income between £25,000 & £100,000
October 2013 Existing unincorporated charities with annual income between £5,000 & £25,000
January 2014 Existing unincorporated charities with annual income less than £5,000, and brand new charities with anticipated annual income of less than £5,000
During 2014 Provisions expected to be made for existing incorporated charities to convert into CIOs (subject to the passing of separate secondary legislation)

 

Advantages of CIO status
– Limited liability protection for members and trustees, which is expected to improve a charity’s ability to recruit and retain trustees.
– CIOs have their own ‘legal personality’ so they are able to enter into contracts with third parties in their own right instead of the name of individual trustees.
– Administrative cost savings. CIOs are accountable to only one regulator: the Charity Commission. They will need to submit only one set of accounts and annual return. Unlike Companies House, the Charity Commission does not currently charge for registration or the filing of information, nor does it impose fines for late filing.
– CIOs will be governed by a constitution which is designed to be simpler and easier to understand than the Articles of Association of a company limited by guarantee. The duties of members and trustees will be laid down with charitable, rather than commercial, principles in mind.

 

Disadvantages of CIO status
– The CIO will be a new legal vehicle and unfamiliar to third parties.
– The legislation relating to CIOs will be very new, and therefore charities will need some time to get to grips with it.
– There will not be a register of charges maintained at the Charity Commission in relation to charges granted by the CIO. There is concern that this may deter potential lenders, although the CIO would still need to register any charges with HM Land Registry.
– If a charity has permanent endowment, such property can never become part of the CIOs corporate property and therefore would need to continue to be held on permanent trusts, the CIO being appointed the trustee of it.