The long-term future of a successful Lincolnshire haulage company has been secured after it was...
Charitable Incorporated Organisations
- AuthorCatriona Wheeler
Until very recently most charities were charitable trusts or unincorporated associations, or charitable companies. Trustees of a charity which has land, enters into contracts or has employees would normally consider a charitable company preferable, as this would give them the same type of protection of limited liability that any limited company has. The risk for a trust or unincorporated charity is that if something goes drastically wrong and the charity does not have enough money to pay its debts the trustees themselves could be liable personally. The disadvantage of a charitable company is that company law applies as well, so the trustees are directors too and must always consider the Companies Acts as well as the Charities Acts. There is also some additional administration as returns need to be made to Companies House as well as the Charity Commission.
Some time ago it was proposed that a new type of charity be created – a charitable incorporated organisation (CIO). This type of charity gives the protection of limited liability, but without the extra layer of company law regulating the charity. The CIO will be registered with the Charity Commission, but not at Companies House.
CIOs have been in place for a year or so in Scotland and, since December 2012, have been available in England and Wales. The Charity Commission has published two model constitutions – one for a CIO where the only voting members are its trustees and the other for CIO which has a wider membership and the trustees are chosen from the membership. The model documents are on the Charity Commission website, and the Charity Commission’s preference is that their models are used as these have been carefully considered as part of the process for putting in place the concept of CIOs. It is unlikely that other CIO constitutions will be used much or at all in the early days of charitable incorporated organisations as the Charity Commission and professionals become used to this new structure. Use of the model will also speed up the registration process. The models themselves are quite simple and drawn up in plain English. This may mean that they are not appropriate to large, complex charities, but will be of great advantage to small or medium sized charities that require some protection.
Over the last few years Andrew & Co has often acted when charities which were unincorporated have chosen to incorporate. The process will be similar, without the first stage of registration at Companies House. A CIO would be formed at the Charity Commission and steps taken to transfer the undertaking and assets of the existing charity. This involves checking the existing charity’s constitution about winding up and might involve some extra steps to allow for that. We would advise in relation to transfer of employees and the appropriate consultation as well as the transfer of contracts, leases and freehold land. There might be some issues if there are grants with claw-back, which we would need to discuss further. If the charity has some permanent endowment, that is to say, assets such as money, which cannot be spent, this can be transferred to a CIO, by a Vesting Declaration and the CIO becomes trustee of the permanent endowment.
New CIOs with income over £5,000 can now be registered. Existing unincorporated charities with income over £250,000 may set up CIOs from 1st March 2013, with the threshold dropping to £100,000 on 1st May, down to £25,000 on 1st July, to £5,000 on 1st October and less than £5,000 from 1st January 2014. Incorporated charities will be able to transfer to CIOs at some time in 2014.
If you have any questions about Charitable Incorporated Organisations or any other aspect of charity law please speak to Catriona Wheeler on 01522 781472 or email email@example.com