UK Charitable Incorporated Organisation
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What are Charitable Incorporated Organisations (CIO)?
What are the benefits of being a Charitable Incorporated Organisation?
CIOs benefit from limited liability in the same way that charitable companies do. In comparison to an unincorporated association or trust, if things go wrong, the members and trustees are generally not personally liable for the any debts or other liabilities that the CIO incurs that are greater than the charity’s assets.
CIOs do not need to register with Companies House and are not subject to company law. They are solely registered with the Charity Commission and only regulated by charity law. This reduces up-front paperwork and on-going filing obligations leading to cost savings and is advantageous to trustees with no previous knowledge of running a company. In comparison, charitable companies are regulated by both the Charity Commission and Companies House and so it can be hard for individuals to fully understand their dual duties as both a charity trustee and company director.
As well as offering a simpler regulatory regime, if urgency is important, CIOs are quicker to register at the Charity Commission than other types of charities. Registration is also easier as they are not required to show any proof of funds (the £5,000 income threshold for other charities does not apply to CIOs).
A CIO structure gives a charity legal capacity to do things in its own name because, like a charitable company, it is a legal entity with separate legal personality. This means it can employ staff, own freehold property and take on leasehold property, and enter into commercial contracts (to provide services and buy or sell goods) in the charity’s name. As a result, any employment disputes, property claims, or contractual claims would be pursued against and could be brought by the CIO. In contrast, with a trust and an unincorporated association, the trustees must do these things personally as the charity can only interact with the outside world via its trustees.
How will Charitable Incorporated Organisations operate?
The Charity Commission will register all new Charitable Incorporated Organisations. Registration will be regardless of income levels and because of this a CIO cannot therefore be an exempt charity. To register with the Charity Commission of England and Wales the principal registered office must be situated in either England or Wales and the CIO will be required to submit an annual return and accounts to the Charity Commission regardless of its income level.
Charitable Incorporated Organisations have to keep a register of trustees which is available for inspection, as well as one for members. Its constitution must contain certain provisions and for this reason the Charity Commission have provided model constitutions, one tailored to Associations where the members are not necessarily the trustees and the other suited to CIOs where the trustees are also the members. Amendments to the constitution will need to be registered with the Charity Commission before they become valid and in some cases the Charity Commission will need to give prior consent to the changes. Insolvency law will be applicable to Charitable Incorporated Organisations.
Are there any disadvantages to becoming a Charitable Incorporated Organisation?
As a distinct legal CIOs cannot convert into something else. Equally, they can only be removed from the CIO register by their dissolution as they cannot exist outside of the regulatory framework.
So, if the CIO legal form is subsequently found to be unsuitable for the charity, the only apparent course of action is to transfer the assets to another charity with similar objects to the CIO and then dissolve the CIO. How the regulatory legislation in England and Wales operates will only become clear once the regulations are approved by Parliament and come into force.
One particular problem with Charitable Incorporated Organisations in England and Wales is that the regulations make no provision for either the CIO or the Charity Commission to keep a register of charges e.g. mortgages over CIO property. The Charity Commission has therefore suggested that Charitable Incorporated Organisations may be unsuitable for larger charities with significant assets and will probably only suit smaller to medium charities.
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