Registration of charitable incorporated organisations (cios)  

CIOs are a new legal form of charity, introduced by the Charities Act 2006, but which are only now being brought into effect. They are an incorporated form of charity which only needs to register with the Charity Commission (they are not companies, and no filings need to be made with Companies House).

The Charity Commission began accepting applications for registration of CIOs on 10 December 2012, and the first registrations were recorded on 2 January 2013, the date on which the CIO Regulations came into effect. As of 11 April 2013, there are exactly 100 CIOs already registered. Registration was only open initially for new CIOs (ie not conversions) with an annual income of £5,000 or more. Registration is now opening gradually for conversions of existing unincorporated charities, according to size of annual income, starting with the largest. The first window, for charities with an income of over £250,000, opened in March 2013. The next is for charities with an income of over £100,000 from May 2013. The schedule may be subject to change (possibly even being accelerated). Conversions to CIOs from other corporate forms of charity are not due to be permitted until 2014.

Update – Section 190 Companies Act 2006

Section 190 Companies Act 2006 seeks to address the potential mischief that might occur if a director may gain personally at the company’s expense from a substantial property transaction with the company, either by selling something to the company for more than its worth, or buying something from the company at an undervalue. An asset is ‘substantial’ if its value exceeds 10% of the company’s asset value and is more than £5,000, or if it is simply more than £100,000. The section addresses the mischief by requiring that such transactions be approved by the company’s members failing which the transaction may be avoided by the company and/or the director concerned can be liable to indemnity the company against any loss from the transaction.

For charitable companies, section 201 Charities Act 2011 provides that members’ approvals of s190 transactions are ineffective without the Charity Commission’s prior written consent. Section 190 is not new; it re-enacts section 320 Companies Act 1985.

In September 2012 the Charity Commission wrote to the Charity Law Association indicating that s190 should apply to incorporations of unincorporated charities, where some or all of the directors of the new charitable company are trustees of the unincorporated charity extension, this would mean that s190 may also apply to some charity mergers, or even to a gift to a charitable company by one of its directors.

The application of s190 to such charity situation appears to be unintended by the legislation and is likely to be reviewed further in 2013. For now, on an incorporation or similar (eg merger) situation where a transfer of substantial non- cash assets is occurring between a director (in whatever capacity) or someone connected to them and a company/or holding company, the directors will need to consider whether they need a members’ resolutory and hence to seek the prior written approval of the Charity Commission for their resolution, before the transaction proceeds. They will also need to factor in to their plans the potential extra cost, administration and delay. (The alternative is not to seek consent and accept the risk of the directors being required to indemnify the company for any loss or damage resulting from the transaction). Helpfully, the Charity Commission has written again to the Charity Law Association setting out a procedure for seeking onset in these circumstances. The procedure relies upon a self-certification process by the directors and appears to be a pragmatic approach to the situation.