A new form of charitable organisation
Until recently charities were expected to fit within mainstream corporate structures such as limited companies. However, a new form of legal entity has now been created for charities by the Charities Act 2011 – the Charitable Incorporated Organisation (‘CIO’).
What is a CIO?
A CIO is similar to a company limited by guarantee (often used by charities as the preferred corporate structure) but can only be used if its activities are ‘charitable in law’ (i.e. for a charitable purpose within the Act and for the public benefit).
- A CIO has to be registered with the Charity Commission but NOT with Companies House, so there is less ongoing administration (and cost) and more flexibility.
- The assets of the charity (and individual members’ liabilities) are ring fenced within the CIO and, in most circumstances, the trustees will be protected against contractual liabilities.
- A CIO is an entity separate from its individual members enabling the CIO to conduct business in its own name rather than in the name of the trustees.
- Registration of a CIO may take weeks or even months to create whereas a new company can be incorporated in a day.
- Until CIO’s are up and running it is not clear exactly how they will operate but they will probably be less straightforward than running an unincorporated association or a charitable trust.
- A CIO may not be suitable for every type of transaction (eg. issuing a debenture). The Charities Commission believes that the CIO will be best for small to medium sized operations which employ staff and/or enter into contracts.
- There may be additional formalities when executing certain types of documents. For instance, if a CIO chooses to execute a deed using its a common seal then it must include a provision in its constitution about how the seal is used and ensure that the full name of the CIO is clearly written on the seal. Failure to comply with this will be a criminal offence on the part of the trustees.
So what does this all mean?
Well, the aim of the CIO is to provide some of the benefits of a company without some of the burdens. Whether it will have the desired effect remains to be seen.
For more information contact Chris Cheatle: CCheatle@gateleyuk.com