Charitable Incorporated Organisations
Are you thinking of setting up a new charity but do not know which structure is best? Or alternatively, are you currently part of an existing charity but unsure as to whether your charity offers the charities or the trustees the best protection, particularly with regards to liability for claims and trading debts? Well, charitable incorporated organisations (CIOs) may be your answer whether you are a new charity or an existing charity.
What issues do charitable incorporated organisations solve?
The introduction of CIOs in 2013 was the much anticipated response to requests from the charitable sector for a legal structure created specifically for charities and which made it possible for charities to effectively run trading operations without risk of unlimited liability.
Currently, most charities are either trusts or unincorporated associations and as such these charities do not have a separate legal identity from their trustees, and their trustees and members do not have limited liability for any claims made against charities and charity debts. Charitable companies are a popular structure for charities to set up, or convert to, in order to avoid these issues. Whilst the charitable company structure circumvents the issues in relation to personal liability of the trustees/members and gives the charity a separate legal identity to enter into contracts in its own name, it causes dual governance by both the Charity Commission and Companies House. This dual governance adds extra administrative burdens on charitable companies including requiring them to file two separate sets of accounts and annual returns. Converting to a CIO or setting up as a CIO instead of a charitable company eliminates this dual governance.
This new charitable structure offers all of the benefits of a charitable company but without the regulation of Companies House and company law. CIOs do not therefore have to file two sets of annual returns and accounts. However, a CIO is a corporate body (like a company) that can own property, employ staff and enter into other contracts with suppliers in its own name (rather than in the name of trustees). Members of a CIO either have no liability at all or, like a company, limited liability for its debts.
How a charitable incorporated organisation could work
Like companies (which must have both members (shareholders) and directors), all CIOs must have members and charity trustees. There are two types of CIOs, one which has the members and charity trustees as the same people (the foundation model) and one which has members who are not trustees (the association model).
It is anticipated that because CIOs were introduced specifically for charities that this structure will be the most appropriate and effective structure. To run a CIO well guidance can be drawn from how successful companies are operated on a commercial basis. Subject to some modifications the basis for a successful company can be adopted within the charity framework using the CIO structure. Care is required in the drafting of employment contracts and governance guidelines along with roles and responsibilities of those involved in the charity as there are pitfalls. We offer a variety of services aimed at helping charities avoid these pitfalls.
|Reporting to Charity Commission||Registration at Companies House||Limited liability||Separate legal identity||Charity tax benefits|
Community Interest Company
A limited liability company (and not a charity) designed for social enterprises which has the specific aim of providing benefit to a community. Charitable companies can convert to be CICs with the Charity Commission’s consent but will lose their charitable status in doing so.