The long-awaited charitable incorporated organisation structure has become a reality, with the Charity Commission now accepting applications and the first registrations expected to begin in the New Year.
The initiative has been presented as a way to simplify the registration and regulation process for charities by providing a single point for both.
CIOs will be able to behave as corporate entities with limited liability for their members, but they only need to register with the Charity Commission, not Companies House, and they will not be subject to company law.
The introduction of a new structure might not make life any easier for those wishing to set up a new charity and there is a good chance it will lead to more long-term issues for volunteer trustees. More choice is not necessarily a good outcome.
There are two key reasons for this.
First is the length of time it will take to set up a CIO. The Charity Commission has said it will aim to respond to applications within 40 working days, compared with the same-day service available from Companies House to register a not-for-profit company.
This will be frustrating at best for anyone setting up a new charity and totally impractical for those new charities that want to provide rapid fundraising relief – for example, in response to a disaster or crisis.
Evidence of this delay has already been seen in Scotland, where CIOs have been available for the past 12 months, with the Office of the Scottish Charity Regulator saying it responds to 89 per cent of applications within 90 days.
The other major concern is that the legal framework itself is lacking in some key areas. For example, the registration of mortgages over a CIO’s land and buildings is not currently supported by the proposed framework. As a result, charities may be unable to secure lending arrangements with some high street banks.
For those reasons, it is disappointing that simpler solutions to the perceived shortcomings of the current situation were not fully explored.
Companies House has been handling the registration of organisations in more or less the same way for more than 150 years and has become extremely efficient. The regulation of companies, including charitable companies, was updated by the Companies Act 2006. A simpler solution could have been for Companies House and the Charity Commission to agree a common framework for the registration and the annual filing of information.
This latest initiative follows similar changes in the private and voluntary sectors. Limited liability partnerships (LLPs) were introduced in 2000 and community interest companies (CICs) in 2005. These new entities have created a great deal of expense and work for the organisations involved and those who manage them, but the benefits (other than tax breaks) have often been hard to discern.
With trusts, societies, companies and now CIOs, charities have four choices of registrable organisational structure, each with their own pros and cons. The worry is that, far from simplifying things for those wishing to establish a charity, this offers a highly confusing array of choice. There has been little chance to learn from the experience of those in the sector in Scotland, with promised reports yet to be published.
Some of the urgently needed clarity and guidance has been made available by the Charity Commission, to help new charities to make the best decision for their specific needs. There is much more to do, especially for those existing charities contemplating a conversion.
Keith Arrowsmith is a partner at JMW Solicitors