400 years later: a legal structure designed specifically for registered charities

A ‘legal structure’ describes the form a business, or in this case a charity, chooses to take when setting up. It will determine the way in which you operate, and the different options vary in terms of the registration process, financial liability, tax implications and ability to enter into contracts.

For a long time many charities have used a company limited by guarantee. A company limited by guarantee is beneficial for members and trustees as it gives them limited liability and allows the charity to become its own separate legal entity. However, this particular legal framework was never designed specifically for charities and their features. Accordingly, there are certain drawbacks such as; dual regulation under the Companies Act and the Charities Act and needing to file two sets of accounts with Companies House and the Charities Commission.

There are other legal structures that a charities have adopted over the year e.g. trust and unincorporated association, however these also come with their own drawbacks. In order to tackle these issues, a new form of legal structure, designed specifically with charities in mind was created in 2013, the Charitable Incorporated Organisation (CIO). The CIO was designed specifically for charities that want to operate as an incorporated organisation with their own legal personality, but without also having to be companies that are subject to company law.

Whilst a CIO has its own advantages and disadvantages, in general it successfully appeals to the modern day charity hoping to operate for the benefit of its charitable purpose whilst having access to the features of an incorporated body.

Advantages Disadvantages
·         Single registration with Charity Commission

·         Lower administrative burden

·         Separate, distinct legal entity

·         Benefit of charitable status; tax reliefs and good reputation

·         Limited or no liability

·         No fee to pay to register

·         New form of structure; undeveloped laws and regulations

·         If a CIO stops being charitable, it will cease to exist

·         Can be restricted in terms of assets e.g. distributing profits to members or offering debentures

·         Charities are subject to various rules regarding trading

If you are currently either an unincorporated charity or a charitable company, you may be able to convert to the CIO structure, if you see it as beneficial. You may want to do this if you are restricted within your current structure choice. Guidance on this process can be found on the Charity Commission website: https://www.gov.uk/guidance/change-your-charity-structure#convert-an-unincorporated-charity-to-a-cio

If becoming a CIO appears to be an attractive option, there are a number of criteria to meet before being able to eventually register with the Charity Commission. Below is a step by step guide to help your organisation is ready to become a CIO before you apply to the Charity Commission to register a CIO. A solicitor will be able to advise you if a CIO is the best option for you and can provide advice about the registration process.

  1. Consider whether your organisation meets the requirements for charitable status

To qualify as a charity, there are two requirements that must both be satisfied under Charity Law. The first requirement is that the charitable purpose of the organisation must fall into one of the 13 categories set out in Charities Act 2011:

  1. the prevention or relief of poverty
  2. the advancement of education
  3. the advancement of religion
  4. the advancement of health or the saving of lives
  5. the advancement of citizenship or community development
  6. the advancement of the arts, culture, heritage or science
  7. the advancement of amateur sport
  8. the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
  9. the advancement of environmental protection or improvement
  10. the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
  11. the advancement of animal welfare
  12. the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services
  13. any other purposes currently recognised as charitable or which can be recognised as charitable under the law of England and Wales

The second requirement; the charity must exist for the benefit of the public, not just a specific group of private individuals. Under Charity Commission Guidance, it must be beneficial, and any detriment or harm must not outweigh the benefit as well as benefitting the public in general, or a sufficient section of the public.

Obtaining charitable status requires no fee. The Charity Commission will carefully consider whether you meet these criteria when you apply to register.

  1. Decide which CIO model your organisation will adopt

 Currently there are two types of CIO; Association Model and Foundation Model. Both types of CIO have trustees and members.

Association Model

Where a CIO has a separate voting membership, i.e. it has members other than just its trustees, it is known as an Association Model CIO. Where an Association Model is used the trustees will manage the CIO but certain matters are reserved for decision by the members. For example, they could remove a trustee if this power is included in the constitution.

Foundation Model

A CIO in which the only members are also the charity trustees (and vice versa), is known as the Foundation Model. The same people will run the company and make all the decisions about the CIO.

For further guidance on the various structure options follow the link below:

https://www.gov.uk/guidance/charity-types-how-to-choose-a-structure#types-of-charity-structure

  1. Choose a name

 You have the freedom to choose the name of your CIO, but there are some restrictions placed on this, especially when it comes to similarities.

Your charity name must not:

  • Be similar to the name of an existing charity (unless you can prove you need to use it);
  • Use words you don’t have permission to use, for example a trade mark;
  • Use offensive words or acronyms; or
  • Be misleading, for example suggest your charity does something it doesn’t.

Before choosing a name, use the charities register search tool to discover if there are any charities already registered with a name/similar name you want to use: https://www.gov.uk/find-charity-information

  1. Choose trustees

The charity trustees are those who have the general control and management of the administration of a charity. They lead the charity and make decisions on how it is run.

Anyone can become a charity trustee, but you must be at least 16 years old. Details of the appointment process will be included in the charity’s governing document (constitution); this must be followed correctly in order to appoint trustees.

Trustees of a CIO have various duties that involve ensuring the charity is fulfilling its charitable purpose, following the governing document, and acting in the charity’s best interests.

  1. Write your constitution

 A constitution is a CIO’s governing document that explains how the charity is run. The constitution must take the form of either a foundation or association constitution depending on the CIO model chosen at the outset. It lets trustees and other interested parties have access to information concerning:

  • Your charity’s purpose;
  • Who runs it and how they run it;
  • How trustees will be appointed;
  • Rules about trustees’ expenses;
  • Rules about payments to trustees; and
  • How to close the charity.

Model constitutions are provided on the government website by following this link: https://www.gov.uk/government/publications/setting-up-a-charity-model-governing-documents .

  1. Register with the Charity Commission

Once all of the above steps have been completed, your Charitable Incorporated Organisation is ready to be registered with the Commission. Follow the link below to begin:

https://apps.charitycommission.gov.uk/outreach/RegistrationLanding.ofml

There is no minimum income requirement to register as a CIO.

To register, follow the link above and either log in or register as a new user. Here, the online application form must be filled out; this describes the organisation and how it meets the requirements for a charity. You must also submit your completed foundation/association constitution template to the Charity Commission. It may take up to 45 days for the commission to get back to you and they may return the application for resubmission if it is insufficient.

If any issues arise, the Charity Commission will inform you of what needs to be changed during the application process.

If converting from an unincorporated organisation, there may be a slightly higher administrative burden. Similarly, you must chose the appropriate model (association or foundation) and complete a constitution template in order to register, then transfer the original charity’s assets. That original charity must then be closed in line with its governing document and the commission must be notified.

Your charity will then take the Charitable Incorporated Organisation form, in its own legal entity, with the ability to enter into contracts in its own name. The CIO structure has taken the most advantageous elements of a charity and company in order to create this new form.

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This blog post was written by Ellie Hargraves. Ellie is in the penultimate year of the MLaw degree and is currently working as a Student in one of the Business & Commercial firms in the Student Law Office. Ellie enjoys great food and socialising with friends and family. She hopes to secure a training contract once she has travelled across Southeast Asia following her graduation.