Charitable incorporated organisations start soon

Get ready for the new legal form, says Robert Nieri of Freeth Cartwright

Robert Nieri, senior associate, Freeth Cartwright
Robert Nieri, senior associate, Freeth Cartwright

Five years after the charitable incorporated organisation model was announced in the Charities Act 2006, there are signs that, at last, it will soon be available.

The CIO is a new corporate structure for charities, providing some of the benefits of being a company, but without some of the burdens.

The option of incorporation as a CIO is timely as the government advances its localism and big society agendas, because it is sensible that those organisations that are prepared to become engaged in their communities without financial reward seek the protection of limited liability before entering into contracts or using paid staff and volunteers.

Traditionally, the usual way of achieving such protection has been to incorporate as a company limited by guarantee and then to register as a charity. But this has never been a perfect fit for charities, subject as it is to dual regulation: accounts and reports are sent to both Companies House and the Charity Commission.

Trustees have often been surprised to learn that they are company directors, with all the legal responsibility this entails. The CIO means a reduced regulatory burden but still provides a bespoke charity structure.

The Charity Commission will begin registering and regulating CIOs once parliament has passed the necessary regulations, which is likely to be in the autumn.

The regulator has recently published initial guidance and two alternative model constitutions, which are broadly similar. The 'foundation' model will cater for CIOs that want the only members to be the charity trustees, while the 'association' model will be available for those that require a wider membership.

In managing the CIO's affairs, a charity trustee will be required to exercise only such care and skill as is reasonable in the circumstances, having regard to their particular skillset and experience.

Becoming a CIO might have particular advantages for small charities with incomes of less than £5,000 a year. This is because they will have to register with the commission, which otherwise would consider their applications only in exceptional circumstances, since there is no legal requirement for them to register.

Groups without charitable status say they feel they are missing out on the reputation and funding that can go hand-in-hand with charitable status.

All CIOs will have to submit an annual return and accounts, keep registers of members and trustees, and make sure their constitutions contain certain provisions.

Ultimately, this will mean more paperwork in return for more legal protection, but with less regulation than if an organisation operates as a company limited by guarantee.

Concerns have been expressed about the Charity Commission's ability to regulate, as well as register, CIOs when it is due to lose 30 per cent of its budget.

But the commission has already geared itself up to deal with this additional responsibility, which it sees as a priority because of its new focus on its role as regulator of charities, rather than as a provider of support and advice to the sector.

It will take up to 40 working days to register a CIO with the commission. If you already have significant financial or legal risks in operating your charity, then the advice remains to address these now and, if appropriate, to incorporate, whether as a company or as an industrial and provident society. In this case, you will be able to convert to a CIO at a later date.

 

Robert Nieri is a senior associate at Freeth Cartwright

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