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A charity’s structure will inform how it operates but it can also have a bearing on the potential accountability of trustees. It is important to ensure that the appropriate structure is chosen when a charity is created. Equally, as a charity grows and develops, trustees should ensure that the charity structure remains optimal. This article considers the merits of one particular structure: the charitable incorporated organisation (CIO).
Charity structures can broadly be divided into two categories: incorporated and unincorporated. As the name suggests, the CIO is an incorporated structure. This means it is a legal entity which can own property and enter into contracts in its own name. By contrast, if a charity is unincorporated (such as a charitable trust or an unincorporated association), the trustees will need to enter into contracts themselves to the extent necessary to carry out the charity’s activities.
The ability of a CIO to own property and enter into contracts is an advantage of this type of structure. Other benefits include:
-being a legal entity which can provide limited liability protection for its stakeholders (meaning that trustees are generally safeguarded from the financial liabilities that the CIO incurs);
-registering with and reporting to the Charity Commission only (as opposed to a charitable company which reports both to the Charity Commission and Companies House which increases administrative time and costs); and
-offering a useful attraction for prospective trustees given these benefits.
The CIO model became available in England and Wales in 2013. Many charities have been created using this model and many others have converted to it having previously existed in a different form.
For unincorporated charities, a principal driver for converting to the CIO model will often be with a view to securing limited liability protection. An unincorporated charity may find it increasingly difficult to find new trustees willing to enter into contracts and other arrangements themselves given the associated risks and exposure (including in particular potential personal liability). A CIO structure can help to allay concerns and therefore assist the continuing operation of the charity.
The process of converting to a CIO need not be complicated but much will depend on the nature of the charity in question and its assets. The first step should always be to receive advice on the merits of converting. If a decision is made to proceed, the process involves:
-preparing and approving the new CIO constitution;
-applying to register the new CIO with the Charity Commission (the CIO is formed only once registered);
-transferring assets of the existing charity to the new CIO and novating any contracts; and
-updating third parties on the change of structure as required.
Should you wish to discuss any point touched on in this article, please contact Andrew White by emailing andrew.white@michelmores.com or calling 020 7788 6324. Andrew regularly advises on the creation of UK charities and provides on-going governance advice for charity trustees.
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