The Charities Act 2006 (now the Charities Act 2011) introduced a new form of incorporated charitable entity, the CIO. There has been a long delay in making CIOs available but their imminent arrival has been heralded by a recent government announcement.
In many respects, CIOs are similar to the most popular incorporated structure for charities, the company limited by guarantee. In contrast to companies limited by guarantee, the vehicle can only be used if its activities are charitable in law. It is also important to distinguish CIOs from community interest companies which, although they may carry out charitable activities, do not have charitable status.
The advantages of CIOs include the benefits of incorporation as an entity separate from its individual members, such as the ability to ring fence risk and to limit members’ liability. They are only required to be registered with the Charity Commission and not with Companies House as well, as in the case of companies limited by guarantee. Also, in contrast to companies, the requirement to act in a way that is most likely to further the charitable purposes of the organisation is a duty imposed not only on the directors but also on the members of a CIO.This may reassure those concerned that adoption of a corporate structure may lead to a more commercial approach being adopted by the charity. It is anticipated that there will be relatively straightforward processes for merging CIOs and for charities currently using other legal forms converting into CIOs.
The disadvantages of CIOs include, as with any new legal form, the fact that it will not be clear exactly how CIOs will operate until they are up and running. Whilst a new company can be incorporated in a day, charitable registration can take some time and it is anticipated that the registration of CIOs will, similarly, take weeks, or perhaps months, rather than days.
The timetable for implementation of CIOs was announced on 30 October 2012 by Nick Hurd, the Minister for Civil Society. He admitted the timetable may slip if the Charity Commission receives a substantial number of applications.
The proposed timetable is set out below:
Click here to view table.
Charity Commission’s initial view of CIOs
The Charity Commission commented that it is of the opinion that small to medium sized organisations are likely to be the main beneficiaries of the new structure.
Scottish CIOs or “SCIOs” have been in operation since 1 April 2011. The Office for the Scottish Charity Regulator is pleased with the registration of new SCIOs and is happy with how their regulation is progressing at present.