On This Page:

  1. What is a CIO
  2. CIO Overview
  3. Pro's and Con's of CIOs
  4. The four main types of charity forms
  5. Resources
  6. Support

1. What is a CIO?

Charitable Incorporated Organisations or CIOs are a relatively new legal structure available for charities or charitable groups that wish to be incorporated. It can be picked instead of the hitherto process of registering as a charity and then as a company.

CIOs have been designed specifically for charities, allowing them to register just once with the Charity Commission as an
incorporated form of charity which
is not a company. This cuts out the need to register with and report to Companies House.

Reduced administrative burden is proposed as just one of the benefits of becoming a CIO. In addition to this, the CIO would have its own legal personaltiy and so can enter into contracts in its own right rather than in the name of individual trustees. Trustees will also have limited liability.

CIO members still have key rights in law and under the Constitution and trustees are still responsible for managing the organisation (note that trustees for CIOs will only be trustees, they will not have the dual role of Company Director).

The policy paper for CIOs stated that ‘The CIO will add to the range of legal structures which charities can choose to adopt, and is expected to be a popular legal structure, particularly for small to medium sized charities.’ This is because, an organisation can register as a CIO without having any income. To become a registered charity under the previous regime - an organisation must have £5000 income, which meant that small organisations could not receive a charity number a catch 22’ if a funder will only fund registered charities! The CIO form provides a registered number with the Charity Commission but does not have the income threshold, allowing for smaller organisations who need a numberto gain funding.

2,016 CIOs were registered in 2014, making up 41.4% of all charity registrations in England and Wales during the year. Since CIOs were first registered on 2 January 2013, 17,000 CIOs have been registered, as at the end of May 2019.

Now in its eight year, the CIO legal form is dispelling early concerns that small organisations, especially those with income of under £5000, will find the process an added administrative burden, through the need for all CIOs to register with the Charity Commission and then to fill out annual returns and accounts regardless of income. It was also felt that it would make setting up a new charity more difficult, as CIOs only come into existence once registered with the Charity Commission and this could take upwards of 40 working days.

Having its own legal personality should make it easier for CIOs to hold property and enter into contracts, however, it has been argued that the legal framework surrounding CIOs does not currently support the registration of mortagages over a CIOs land and buildings, an issue that could make securing lending arrangements difficult. In addition the Charity Commission does not maintain a public register of charges which may affect charities wishing to borrow money.

Of course there are always pros and cons no matter which legal form an organisation takes, and with CIOs in the early stages it is difficult to know where problems will arise. It is a positive step having a legal format made specifically for charities (although for many it might seem strange that Companies House and the Charity Commission did not simply come up with a joint registration procedure).


2. CIO Overview

1. Incorporation

Yes

2. Limited Liability

Yes for members & trustees (if in breech of trustee duties can still be personally liable)

3. Governing document

Consititution (certain provisions prescribed by Charities Act 2011): must keep as close to template as possible. Legal guidance will be needed to make any big changes.

Constitution outlines the rules for governance of the CIO including:

  • Membership and trustees

  • Optional to require members to contribute finds (normally

    £1) if CIO is wound up

  • Legal duty for members to act in good faith when

    exercising their powers

  • CIO law for certain governance procedures (e.g. proxy

    voting and communications to members) are very flexible

    (unlike for companies)

  • No explicit provision for trustee indemnity

    No amendments are valid until the CC approves them and it is currently unclear what amendments will be acceptable.

4. Can register as a charity

Yes this is a charity but with incorproation so there is no need to register as a charity as well. A CIO does not come into existence until registration is complete and charity is entered in the register of charities.

5. Ease to set up

Easyish! The Charity Commission has provided two constitution templates to choose from - fill this in and apply online using the usual charity registration form. You will need to be able to show Public Benefit, have clear charitable objects etc. May take up to 40 days.

6. Costs

Cheap no fee currently

7. Sources of finance available

Grants, Contracts, trading, crowdfunding, fundraising events etc.

8. Regulator

Charity Commission only

9. Members

Yes Foundation or Association. No members guarantee

10. Income requirement

No minimum income requirement

11. Converting to CIO

Yes unincorporated charities or charitable trusts or CICs Charitable companies are also able to convert to a CIO, see information below.

12. Merger

Easy to merge CIO’s together.
No information regarding merging with a non-CIO

13. Insolvency

Insolvency laws apply

3. The Pros and Cons of CIOs

Pros

Cons

Need only register with Charity Commission

Not as straightforward as running an unincorporated association or a charitable trust

Need only comply with Charity Law

Not as suitable for charities wanting to issue debentures

Limitied liability for trustees and members

Does not come into existence until registered with the Charity Commission therefore you cannot open a bank account etc. in its name until it is fully registered

Legal personality - enabling it to conduct business in its own name, rather than the name of the trustees

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Cannot be an exempt charity

Suitable for small to medium sized organisations which employ staff and/or enter into contracts - simpler than establishing a charitable company

Submission of accounts and registers - for groups under £5,000 may involve a lot more work

Charities can transfer the ownership of any trading subsidiary company to the CIO.

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May not be suitable for large/complex charities

Flexibility, for example, CIO constitution can allow for decisions at meetings to be by consensus

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CIO legislation makes no provision for the maintenance of a register of charges - may make it more difficult to borrow.

Regime for electronic communications with members is also less rigid than the regime that applies to charitable companies i.e you can email all members without receiving permission first.

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Members of a CIO will not have rights to receive accounts, call meetings, vote by proxy, demand a poll and remove a trustee unless the constitution expressly provides them.

Smaller CIOs can prepare receipts and payments accounts (under £250,000 annual income), while smaller charitable companies must prepare accounts on the accruals basis.

CIO can only change its written constitution with a written members resolution unanimous vote rather than 75% as a company

A CIO must submit annual returns and accounts to the Charity Commission regardless of income

Provides more choice when looking at legal structures

Possibly adds more confusion when looking at legal structures

Reduced red tape

Law is gradually becoming familar but untested currently

Simpler transfer of permanent endowment

Charity Commission funding cuts leading to staff cuts.

Able to generate income in all the ways a charity can

Funders gradually becoming familiar with the structure

4. The four main types of legal charity forms

Trust

Unincorporated Association

Company Limited by Guarantee / Incorporated

Charitable Incorporated Organisations (CIOs)

The governing document is a trust deed or a will. There is no protection from liability for the trustees.

The governing document is a constitution or rules and there is usually a membership. The trustees are often referred to as the management committee. Again, there is no protection from liability for the trustees.

The governing document is a memorandum and articles of association for a company formed before September 2009 and articles of association for a company formed since then. The trustees (or directors) are protected in most circumstances against contractual liabilities. Charitable companies must register with Companies House and, usually, with the Charity Commission.


The governing document is a constitution. The trustees will be protected in most circumstances against contractual liabilities. CIOs only register with the Charity Commission.


Resources:

  • Charity Commission: Start up a chairty guidance https://www.gov.uk/charity-types-how-to- choose-a-structure

  • Cabinet Office: https://www.gov.uk/government/policies/making-it-easier-to-set-up-and-run- a-charity-social-enterprise-or-voluntary-organisation/supporting-pages/charitable- incorporated-organisation-a-new-structure-for-charities

  • Charles Russell Briefing:http://www.charlesrussell.co.uk/UserFiles/file/pdf/Briefing_note_The_Charitable_Incorporat ed_Organisation_To_use_or_not_to_use.pdf

  • Deloittes: http://www.deloitte.com/assets/Dcom- UnitedKingdom/Local%20Assets/Documents/Industries/uk-charity-charitable-incorporated- organisations.pdf

  • Charity Commission Guidance: Change Your Charity Structure https://www.gov.uk/guidance/change-your-charity-structure


Support

If you would like any support with setting up an organisation, please contact the Development Team at Community Southwark: [email protected] or 020 7358 7020.

Cover photo credit; https://www.vecteezy.com/free-vector/company