A Charitable Incorporated Organisation (CIO) is a new type of legal structure for a charity. It is anticipated that CIOs will become available in October 2012 for new organisations wishing to register, with existing organisations able to convert at a later date.
What is a CIO?
A CIO is a new legal form for a charity. Its main features are:
- It is an incorporated form of charity but is not a company
- It has only to register with the Charity Commission and not also with Companies House
- It can enter into contracts in its own right and its trustees will normally have limited or no liability for the debts of the CIO
- It has its assets locked in for charitable purposes, and cannot distribute assets to its members
The CIO was created in response to requests from charities for a new structure which would provide limited liability for trustees without the burden of registering with both the Charity Commission and Companies House.
There are basically two types of CIO available:
- Foundation Model - for smaller charities where the trustees and the members are the same.
- Association Model - for larger charities with a wider voting membership, most of whom will not be trustees.
Is a CIO the right structure for your charity?
If you are thinking of setting up a charity there are now four main structures to choose from:
- Trusts - the governing document is a trust deed or a will. They provide the trustees with no protection from liability.
- Unincorporated Association - the governing document is a constitution or a set of rules and there is usually a membership. The trustees are often referred to as the Management Committee. The trustees have no protection from liability.
- Company limited by guarantee - the governing document is now the Articles of Association. The trustees (or directors) are protected in most circumstances against contractual liabilities. Charitable companies must register with Companies House and usually with the Charity Commission.
- CIO - the governing document will be a constitution. The trustees will be protected in most circumstances against contractual liabilities. CIOs only register with the Charity Commission.
What types of charity will benefit most from being a CIO?
CIOs are most suitable for small to medium organisations which employ staff or enter into contracts or own property. It will enable you to do these things in the name of the charity.
However if you want to raise funds via debentures or a mortgage over the assets of the charity, then a company limited by guarantee will be a better option.
Although establishing and running a CIO should be simpler than forming a charitable company, it will still not be as straightforward as running an incorporated association or a charitable trust. These are recommended where liability of the trustees is not an issue.
What will CIO's have to do that is different from an unincorporated charity?
Many aspects of running a CIO will be the same, but there are some important differences :
- All CIOs will have to register with the Charity Commission regardless of their income, even if they have an income of less than £5,000
- As all CIOs will have to register, a CIO cannot be an exempt charity
- A CIO does not come into existence until the Commission has registered it
- A CIO will have to have a registered principal office in England or Wales
- All CIOs will have to submit an annual return and accounts to the Commission regardless of income
- CIOs will have to keep a register of members and a register of trustees which anyone can ask to see
- The constitution of a CIO must contain certain provisions, and the two model forms of constitution comply with these provisions
- Amendments to a CIO's constitution will not be valid until they have been registered with the Commission, and certain amendments require their consent
- Insolvency law applies to CIOs
Becoming a CIO
There are various methods for your organisation to become a CIO and these will depend on your current position:
- Forming a new organisation as a CIO - you apply to the Commission to be a charity, and once you are registered you can apply to be a CIO by supplying a copy of the proposed constitution and other required documents.
- Converting an unincorporated association to a CIO - there is no formal conversion process for this. You would need to set up and register a new CIO, and then transfer all the property and assets of the association to the CIO.
- Converting an existing corporate body to a CIO - this should be straightforward as long as you are not an exempt charity. You re-register as a CIO with a new constitution which must follow one of the Commission's models.
- Converting a community interest company (CIC) to a CIO - a CIC can only convert to a CIO if its shares are fully paid up. The CIC must register as a charity with the Commission, and then provide the proposed new constitution and the resolutions authorising the conversion.
The CIO should provide a useful vehicle for certain types of charity, and will be a valuable alternative incorporated structure to a company limited by guarantee. It will no doubt take a while for the law governing CIOs to evolve.