Larger charities 'will not benefit from new charitable incorporated organisation legal form'

Report by Deloitte says CIOs have disadvantages compared with regular companies

Deloitte
Deloitte

The new charitable incorporated organisation legal form will not be suitable for larger charities because it will not allow them to borrow money, according to a report published by the accountancy firm Deloitte.

The form is intended to allow charities to be incorporated organisations that are not companies, meaning they will need to register with the Charity Commission, but not with Companies House.

It was created by the Charities Act in 2006, but has not yet been introduced. Nick Hurd, the Minister for Civil Society, has promised that it will be brought in this year.

The Deloitte report, written with the law firm Sherrards, warns that CIOs have several disadvantages compared with regular companies.

The main one is that, unlike a company, a CIO will have no way to offer security for any borrowing.

"This means that if a CIO wishes to borrow money, the individual trustees may be called upon to give a personal guarantee, which defeats the purpose of operating through an incorporated entity," the report says.

The report also says that the law governing other legal forms available to charity has evolved over hundreds of years, but CIOs are a new legal entity and it will be some time before the law on them has evolved.

It says while CIOs are not supposed to fall under the Companies Act, they are likely to find themselves subject to many of the same regulations as companies.

"If they were not, it would be necessary for parliament to enact a whole raft of additional legislation solely applicable to CIOs in order to replicate the law related to companies covering such areas as insolvency," it says.

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