Associate Director for Quality and Technical Assurance, Stuart A. Brown discusses a popular legal structure for charitable entities – Charitable Incorporated Organisations (CIOs).
A CIO is a legal status available to charities that limits liability at the same time as providing a reduced administrative burden on trustees.
They differ from incorporated charities in that they only need to be registered with the Charity Commission and therefore do not have to submit financial statements to Companies House but share the positives of being recognised as a separate legal entity.
A CIO, of course, must be set up with charitable aims. Setting up a CIO is relatively easy. The Charity Commission (CC) provides two different constitutional templates to choose from, a Foundation or Association. In a foundation the only voting members are also the trustees, whereas in the Association the voting membership is wider than its trustees. A template needs to be completed and an application can be made online. The public benefit needs to be exhibited and the charitable objects need to be clear.
A CIO follows the financial reporting required by the CC, not the Companies Act and therefore the form of the financial statements is that of a charity.
Unlike a company limited by guarantee, there is no requirement to have a minimum income of £5,000 for it to register with the CC.
The CIO is a separate legal entity. This enables it to enter contracts, hold property and employ staff in its own name. Therefore, any liabilities arising from such arrangements lies with the organisation rather than the trustees, like a limited company.
Trustees benefit from limited liability, as do directors of companies limited by guarantee.
On registering with the CC, a CIO is automatically given a registered charity number. This assists with communicating with HMRC regarding charitable tax advantages and serves to reassure potential funders and donors. A charitable company must have income of at least £5,000 to register with the CC.
CIOs only need to be registered with the CC. As a result, CIOs are not required to file information at Companies House but file information with the CC.
As CIOs follow Charity Law, CIOs with a gross income of less than £250,000 in any financial year may use the receipts and payments basis to prepare its accounts.
As opposed to a charitable company, a CIO does not exist until it is registered with the CC.
The process for registering a CIO with the CC can be relative slow – taking up to 45 working days for the application to be processed. This is compared to circa 5 working days to register a company.
If a CIO loses its registration at the CC, it will no longer exist. If a company limited by guarantee loses its charitable status, it will still exist as a company.
The CIO structure is not open to all types of charities - exempt charities (as set out under charity law) cannot be CIOs.
It is unlikely that CIOs will be able to take on secured borrowing as the CC does not have the ability to establish or maintain a register of charges over CIO property.
It is possible to convert from an unincorporated charitable trust and since 1 January 2018 it has been possible to convert from a charitable company to a CIO (income under £12,500 pa). From 1 September 2018 it has also been possible to convert a Community Interest Company to a CIO. Please let your local director know if you have any specific queries relating to conversion to a CIO.
All the above factors need to be considered and it will depend on the circumstances of a given entity.
If you would like to talk to a member of our team about the best structure for your charity, please click here.