Governance dominates debate on new legal form for charities

The minimum age of trustees and the power of members to remove them were among the main sources of controversy at the Office of the Third Sector's opening consultation on charitable incorporated organisations last week.

Cabinet Office: home of the Office of the Third Sector's CIO consultation
Cabinet Office: home of the Office of the Third Sector's CIO consultation

The vast majority of charity lawyers and accountants who attended the session, co-hosted by the Charity Commission, agreed that the CIO, the new incorporated structure for charities, would be useful.

Opinion was evenly split, however, on whether CIOs should adopt the company law minimum age limit of 16 for trustees. The minimum age for trustees of unincorporated charities is 18.

One delegate questioned the ability of 16-year-olds to understand the commission's guidance on public benefit. Another said corporate directors looked after only their own money, while charity trustees looked after other people's. "We shouldn't replicate a mistake in company law," another added.

Other delegates said involving young people in governance was good social policy. "Anything that allows young people to be more altruistic is good," said one. "It could change their lives. We might have a few mistakes, but lots of older trustees don't know their duties."

Most delegates lamented the lack of powers for members in the commission's draft CIO constitutions, such as the power to remove trustees and call meetings. Members will have such powers only if specific clauses are inserted. One delegate said: "Members are obliged to exercise their powers in the interests of the charity, and removing trustees is one way to do it."

An overwhelming majority objected to CIO trustees being given powers to lower their duty of care below the level required of trustees of incorporated charities (24 September, page 5).

Some participants worried that a lower duty would undermine public confidence and was appropriate only for trustees of unincorporated charities because they did not enjoy limited liability.

There was also some disquiet about the bar on unincorporated charities being members of CIOs. One delegate said: "The Government says your users should be members and, whether you like it or not, lots of associations are already treated as members of second-tier charities."

Representatives of unincorporated charities can be members of CIOs, but some delegates complained that the non-transferability of membership meant it could not be passed on when a representative changed jobs.

Other concerns included the requirement for unincorporated organisations that convert to being CIOs to have a new charity number, and the ban on CIOs merging with non-CIOs. The consultation runs until 10 December.

Q AND A: THE BEGINNER'S GUIDE TO CIOs

- What is a charitable incorporated organisation?

The CIO is a new incorporated legal form for charities. It is an alternative to the traditional structure of company limited by guarantee. The Charity Commission has drawn up two model constitutions: one is for 'foundation' CIOs, whose only members will be their trustees; the other is for 'association' CIOs, whose memberships will be wider than their boards.

- Why is it coming in?

Becoming a CIO will allow charities that are currently unincorporated to limit the liability of their trustees without submitting themselves to the burden and expense of dual regulation by both the Charity Commission and Companies House, as charitable companies do. The rules governing CIOs will be broadly similar to those governing companies, but the reporting requirements will be simpler and the commission, unlike the Registrar of Companies, will not charge for registration or filing information. CIO constitutions will be simpler and more flexible than company articles of association, and umbrella bodies for specific sub-sectors will be able to produce their own model constitutions.

- What are the disadvantages?

CIOs will have to make more information publicly available than unincorporated charities do, and their constitutions will be less flexible. Trustees could be liable for a number of criminal offences. Regardless of their income, CIOs will have to submit accounts and annual returns to the Charity Commission, which has no experience as the sole regulator of incorporated charities. Some fear the commission will be less user-friendly than Companies House.

- When will it be available?

The secondary legislation will be put before Parliament next spring or summer, and the new legal form is expected to be available towards the end of next year.

- Will it be popular?

Charities have been asking for their own incorporated structure for 25 years, but few lawyers appear keen to be the first to lead their clients into the unknown, so take-up is likely to be low at first.

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