it’s been a long time coming, but, finally, the regulations required to make Charitable Incorporated Organisations (CIOs) a reality have been laid before Parliament.

The CIO is a form of incorporated organisation designed especially for the charity sector. Like a company limited by guarantee, a legal structure commonly used by the charity sector at present, a CIO will be able to enter into contracts in its own name, and will offer trustees the benefit of limited liability.

However, unlike companies limited by guarantee, which are regulated by both the Charity Commission and Companies House, CIOs will have the advantage of only having one regulator – the Charity Commission.

It is intended that it will be relatively simple for other charitable incorporated forms to “convert” to the CIO legal structure, if they wish to do so.

A brief history of CIOs

CIOs were first introduced by the Charities Act 2006, but required secondary legislation before it could become available for use by charities.

A consultation on the proposed regulations, which started in September 2008, resulted in a decision that a number of significant changes to the draft regulations would be needed to simplify the CIO structure. Then, to the dismay of many in the sector, it seemed all momentum was lost, although announcements by the Government that the structure should become available “in Spring next year” continued to arrive annually.

Happily, the CIO saga now appears to be drawing to its conclusion. Secondary legislation has been laid before Parliament. Does this mean we can all finally get on with using this new structure now? Well, not quite…

What will charities be able to do as a result of the current secondary legislation?

The good news is that, as soon as the regulations are passed by Parliament, the Charity Commission will be accepting applications for registration from brand new CIOs with income of over £5,000 per year.

However, even if the passing of the regulations by Parliament is not delayed, an indicative timetable for registration of new CIOs issued by the Office for Civil Society makes it clear that some unincorporated charities wanting to take advantage of the new CIO form will have to wait their turn, as registration is phased by income bracket.

At present, the timetable is as follows for incorporation of an existing unincorporated charity into a CIO structure:

1 Mar 2013     Annual income over £250,000 

1 May 2013    Annual incomes between £100,000 and £250,000 

1 Jul 2013     Annual incomes between £25,000 and £100,000

1 Oct 2013    Annual incomes of between £5,000 and £25,000 

1 Jan 2014    Annual incomes of less than £5,000

Charities should also be aware that the regulations now laid before Parliament only relate to the creation of new CIOs, not the conversion of existing incorporated charitable organisations. Secondary legislation in relation to conversion is unlikely to be laid before Parliament until next year, and, at present, it looks as though the option will only become available in 2014 at the earliest.

So, any charitable company limited by guarantee planning on relieving itself of the burden of regulation by Companies House will have to put its plans on hold for the moment.

Are CIOs for everyone?

The reduced regulation and single registration may make the CIO structure attractive both to charities already incorporated as companies limited by guarantee, and unincorporated charities where trustees are anxious about personal liability resulting from substantial contracts for the provision of services, employment contracts or leases.

However, one of the more unfortunate changes to come out of the consultation on the draft regulations in 2008 means that there will be no register of charges (for example, mortgages) over CIO property held by the CIO or by the Charity Commission.

This is likely to be an issue for larger charities with more complex financial arrangements, and may well mean that the company limited by guarantee structure, owing to the availability of the Companies House register of charges, continues to be more appropriate for such charities for the foreseeable future.