Is the CIO structure right for you?

The rules have been changed to make it easier for more charities to convert to charitable incorporated organisations

The charitable incorporated organisation was launched in 2013 to combine the benefits of being a charity with those of being a company. Any charity that wanted to convert to CIO status at first had to wind up the old organisation and start a new CIO.

But parliament passed legislation in November that enables charitable companies to convert simply to CIOs, speeding up the process. The new conversion process is being introduced on a phased basis and the rollout will be completed by August.

There are a number of benefits to be had from becoming a CIO, depending on how your charity is structured. For unincorporated charities, a big motivation for making the change is limited-liability protection. Trustees at unincorporated charities are liable if the charity collapses and might have to cover any losses greater than the charity’s assets. At a CIO, trustees are protected from this outcome.

Bridget Allison, publications and information manager at the Pre-school Learning Alliance, has advised numerous children’s charities on whether a CIO model is suitable and says limited-liability protection is especially attractive for trustees.

"It’s a weight off their minds," Allison says. "Many trustees don’t realise they are at risk of losing their homes by becoming trustees of unincorporated charities."

The advantage of becoming a CIO for charitable companies is they don’t have to duplicate effort by filing accounts with both Companies House and the Charity Commission – CIOs have to do this only with the commission.

And charitable companies that become CIOs retain many of the benefits of being businesses while also accessing charitable tax benefits, although Emma Moody, head of charities at the law firm Womble Bond Dickinson, says that this comes at the price of the increased regulation and transparency to which charities are subject.

Neil Mapes, chief executive of Dementia Adventure, founded his charity in 2009 as a community interest company before setting up a charity to run alongside it to accept charitable donations. The two organisations became a single CIO in 2016, which he says has eased the administrative burdens.

"We had two separate board meetings, two separate governance documents and sets of administration to do, and two registries to be accountable to – both Companies House and the Charity Commission," Mapes says. "The CIO gave us all the benefits of being both a charity and a company without having to register with both."

But converting to CIO status does throw up dilemmas. When a charity has to close and create a new organisation to attain CIO status, its history on the Charity Commission’s website will be lost, which can have unintended consequences.

‘It all disappeared’

Sara Atkinson, founder of Yorkshire Cat Rescue, says her charity missed out on funding by losing this information. "Once we closed the charity, everything on the Charity Commission website disappeared," she says. "Funders who came looking for us, particularly if they were looking for the old charity, weren’t interested, and it probably affected our legacy income as well. So I would say keep the old charity open but inactive for several years."

Similarly, until the recent changes, charities needed to set up new bank accounts, comply with the Tupe regulations to transfer staff and rearrange contracts with suppliers for the new charity, rather than simply move them across. The problem is that these transfers cannot take place until the Charity Commission approves the CIO registration, which means delays in getting the new organisation up and running.

Temi Kamson, founder and chief executive of the young people’s social enterprise GT Scholars, says it’s worth seeking advice from other channels before starting the CIO process. Kamson got advice from another charity, Community Southwark, which explained the process based on its own experience. For other organisations, some pro-bono legal support might be
necessary to ensure the application process progresses smoothly.

Also be aware that the structure is not suitable for all charities. For larger charities, particularly grant-making charities or those that have large permanent endowments, it might be difficult to justify becoming a CIO, especially if the charity is already registered with Companies House. Again, getting advice can help them decide whether to proceed.

Two-tier structure?

Moody says charities that are not membership organisations should consider whether having a two-tier structure separating members and trustees – which is required for CIOs – suits them.

"I think the one anomaly is that you always have to have members and trustees, even if they are the same people," she says. "Many charities benefit from a broader membership structure for their trustees – charities that have thousands and thousands of stakeholder members. But some charities don’t need that, yet if they become a CIO they still need to have, by law, a two-tier structure of trustees and members. I think that’s probably the only thing that clients grapple with."

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