Charitable Incorporated Organisation (CIO): Is it a Suitable Structure for Your Charity?
Whether you are a trustee of an established charity or looking to form a new charity, it is a good idea to consider whether a Charitable Incorporated Organisation (CIO) is a suitable structure for you.
When deciding on the best structure for any charity, consideration should be given to: who runs the charity and if it has a wider membership; whether the charity enters into contracts, employs staff or holds land; and whether the trustees (and any members) wish to protect themselves against being personally liable for what the charity does.
There are four legal structures that are commonly used by charities: CIOs, charitable companies (usually limited by guarantee), unincorporated associations and trusts. The CIO is the newest structure, introduced in 2013. It is a corporate form specifically designed for and available only to charities. Like a charitable company, a CIO must have both members and trustees.
Benefits of a Charitable Incorporated Organisation (CIO)
- CIOs benefit from limited liability in the same way that charitable companies do. In comparison to an unincorporated association or trust, if things go wrong, the members and trustees are generally not personally liable for the any debts or other liabilities that the CIO incurs that are greater than the charity’s assets.
- CIOs do not need to register with Companies House and are not subject to company law. They are solely registered with the Charity Commission and only regulated by charity law. This reduces up-front paperwork and on-going filing obligations leading to cost savings, and is advantageous to trustees with no previous knowledge of running a company. In comparison, charitable companies are regulated by both the Charity Commission and Companies House and so it can be hard for individuals to fully understand their dual duties as both a charity trustee and company director.
- As well as offering a simpler regulatory regime, if urgency is important, CIOs are quicker to register at the Charity Commission than other types of charities. Registration is also easier as they are not required to show any proof of funds (the £5,000 income threshold for other charities does not apply to CIOs).
- A CIO structure gives a charity legal capacity to do things in its own name because, like a charitable company, it is a legal entity with separate legal personality. This means it can employ staff, own freehold property and take on leasehold property, and enter into commercial contracts (to provide services and buy or sell goods) in the charity’s name. As a result, any employment disputes, property claims, or contractual claims would be pursued against and could be brought by the CIO. In contrast, with a trust and an unincorporated association, the trustees must do these things personally as the charity can only interact with the outside world via its trustees.
Possible disadvantages of a CIO include that the members of a CIO have fewer rights than members in a charitable company; they will not be able to appoint a proxy that votes on their behalf at general meetings and they will not be able to remove trustees. Another disadvantage of a CIO is that few people outside the UK know anything about CIOs as they do not exist abroad and so are not commonly used where a charity is operating internationally. Nevertheless, the initial concerns about CIOs such as that they might not be understood by third parties, or that third-party funding might be difficult to obtain, are no longer relevant as third parties (including commercial lenders) are in general now more familiar with the structure.
Main practical steps a CIO must take:
- Use or stay very close to one of the Charity Commission’s model CIO constitutions (either the foundation model (where the trustees are the only members) or the association model (for charities that have a wider membership));
- Be registered with the Charity Commission;
- Keep a register of its members and trustees;
- Send its accounts and annual return to the Charity Commission each year; and
- Comply with charity law and all other applicable legal requirements.
A CIO is not, however, an appropriate structure for all charities. An unincorporated association might be preferable if a charity does not require a corporate structure, for example if it has few assets and business dealings but still has a large membership. A trust structure might be the best option for smaller organisations and grant-making charities, with no staff, premises or substantial contracts.
Conversion to a CIO
There has been a surge in existing unincorporated charities converting to CIOs. In our experience, this has been popular with unincorporated charities who wish to take advantage of the benefits above and the relatively swift application process at the Charity Commission. Recently, there have also been changes introduced which will make conversion to a CIO easier for existing charitable companies, where a charitable company can convert into a CIO rather than having to close and re-establish as a new charity.
There has been a great increase in the number of charity registrations over the last number of years, mainly driven by the popularity of the CIO structure. In 2017, the CIO accounted for approximately 60% of all new charity applications, a 10% increase on the year before. The charity sector has opened its arms to this corporate structure due to its advantages. The CIO model appears to be a right approach for many new charities and existing charities that wish to incorporate, and an option at least worthy of consideration by existing charitable companies. There is however no perfect legal structure for all charities. You will need to assess the advantages and disadvantages of each legal form in the context of your charity and what activities it will undertake.
If you would like to discuss setting up or converting to a CIO, please contact our charity law solicitors on 01895 207862 or email firstname.lastname@example.org.
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