Setting up a Charitable Incorporated Organisation

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Not for Profit
How to Guides
Setting up
a Charitable
Incorporated
Organisation
(CIO)
they have not engaged in fraudulent or wrongful
trading), and this can, as a result, be an attractive
structure for existing charities or prospective
charities. Whilst there are provisions in the Charities
Act 2011 to allow existing charitable companies to
convert to this structure, this is not possible until
the Office for Civil Society has introduced suitable
regulations to govern the process. At the time of
writing, therefore, CIOs can only be formed from
existing unincorporated charities or as completely
new entities.
MHA MacIntyre Hudson “How to Guides” are designed
to provide practical assistance with meeting legal or
regulatory obligations, aid operational effectiveness,
or improve management/governance processes.
They often include models, pro-formas or templates
that can easily be adopted by organisations.
The Guides address a wide range of areas from major
strategic methodologies and policies to operational
processes where advice on good practice is needed.
Accordingly they vary in length and format. All
have the key characteristic of being practical not
theoretical, and based on our team’s decades of
real-life experience working both with and within
a very wide range of not for profit organisations.
There is currently no straightforward way to convert
from an existing unincorporated charity to a CIO.
Such a charity cannot just apply to have its legal
structure changed. Instead, it must set up a new
entity, register the new entity as a CIO, and then
transfer the assets and liabilities of the existing
unincorporated charity to the new CIO.
Legal/Regulatory Background
There are various legal forms that can be used
when structuring a charity, the newest being the
Charitable Incorporated Organisation (CIO). This
“How to” guide will look at how to set up a CIO from
an existing unincorporated charity.
Below is a step-by-step guide on how to:
1. Set up a new entity
2. Register the new entity as a CIO
3. Transfer the assets and liabilities of the existing charity to the newly formed CIO
4. Decide whether to keep the old charity in existence
Detailed guidance
Step-by-step guide:
1. Setting up a new entity
The CIO is a new type of charitable structure that
was introduced in the Charities Act 2006; it allows
charities to take advantage of many of the benefits
of incorporation without being registered with
Companies House, and therefore having to bear the
administrative burdens that come with this. As a CIO
is a separate legal entity to its trustees, the trustees
are not liable for its debts on wind-up (assuming
Setting up a new entity is relatively straight forward.
It requires one or more persons coming together
and agreeing to form an association, and to be
governed by a set of rules. If the entity envisages
1
subsequently registering as a CIO, it is simplest
to use a Charity Commission model governing
document for the entity’s rules and tailoring it
with the specific requirements of the charity being
set up. For general advice on setting up a charity,
the prospective charity should refer to the Charity
Commission’s guidance (see below for more details)
on this, which includes helpful information on
what is considered a charitable purpose, writing
charitable objects, what to consider when naming a
charity, and much more.
2. Registering the new entity as a CIO
Once this has been done, the prospective charity is in
a position to register itself as a CIO using the Charity
Commission’s online registration form. Before it can
do this, the prospective charity must have created
an online profile with the Charity Commission. If it
has recently registered the unincorporated charity
it is seeking to replace, it can use the same log
in details and add a new application to its online
account. This will start a registration form for the
prospective CIO.
It is important to note that CIOs come in two
main model forms: the Association model and
the Foundation model. The difference between
these two forms is whether all voting members are
trustees (Foundation Model) or if there is a wider
body of voting members, of which only some are
trustees (Association Model).
The registration form asks detailed questions on:
• What the CIO does or expects to do in order to
achieve its purpose
• How the CIO’s purpose is beneficial
Given this fundamental difference, the Charity
Commission has two distinct model governing
documents for CIOs. The above hyperlinks provide
further guidance on the differences between
these two models and also include the two model
governing documents.
• Who benefits from the CIO’s purpose
• If the beneficiaries are defined in reference to a
protected characteristic, if this can be justified
under the Equality Act
As well as requiring the prospective CIO to state its
charitable objects, in a number of cases, the model
also gives a choice between different versions of the
same clause, and when tailoring, the prospective
charity must choose which option it prefers.
• How the CIO makes or expects to make decisions
on what projects or groups to support
• How the CIO decides or expects to decide to
Note that the model documents are in non-editable
pdf format. One way of working with this is to print
off the Commission’s model, add the objects in
manually, and remove the versions of the clauses
the prospective charity does not need. Alternatively,
the prospective charity can convert the model into
word format using a commercially available pdf
converter and update where necessary. The latter
process, however, will require the charity to carry
out further formatting as the conversion will not
produce a document that is in a readily usable
format.
If you would like to tailor the governing document
for your prospective charity, we would be happy
to provide further advice on this and assist you in
drafting a document that it is compliant with the
requirements of charity law and includes clauses
that are suitable for the type and size of the charity
you are setting up.
2
whom to make grants, if relevant
• Details of benefits specific to members of the
CIO, if any
• Details of services or facilities provided or
expected to be provided to the public as a way
of advancing the charity’s purpose, if any (e.g. a
football pitch, food bank, art gallery etc.)
• Details of premises owned or leased by the CIO,
if any
• Details of any harm that might result from the
CIO carrying out its purpose, if any
• Details of any personal benefit that might arise
from the charity carrying out its purpose
• Details of past and expected funding
• Details of countries in which the charity expects
to operate
• Personal details of all trustees (including full
name, date of birth, telephone number, and address with post code)
.
If the new CIO is expected to operate in the same
way and for the same purpose as the existing
charity, then the details for the existing charity can
be used to answer these questions. Otherwise the
prospective charity must answer as it expects to
operate, if registered as a new CIO.
and setting milestones in getting the charity set up.
We are happy to provide further assistance in this
area and to guide you through the registration
questions, to ensure that the application form you
submit is clear and contains all the required information.
3. Transferring the assets and liabilities of
aaathe old charity to the newly formed CIO
Once the new CIO has been set up and registered
with the Charity Commission, the trustees need
to transfer the assets and undertakings of the old
charity to the newly registered CIO. Technically
liabilities cannot be transferred over so should
be settled before the assets of the old charity are
transferred, but in practice, most creditors are
happy to be paid by the new CIO.
The most common ways of transferring the assets
and undertakings are to use one of the following:
•
•
•
•
a vesting declaration
a transfer agreement
a members’ resolution
a gift (a charitable application of the funds to
the new company charity)
Note, however, that the method used may depend
on the unincorporated charity’s constitution, which
should be consulted in the first instance.
If the old charity has a permanent endowment, the
trustees should seek specialist legal advice on the
Charity Commission’s rules over its transfer.
Please note that before the form can be
submitted, the prospective CIO must also:
• Confirm that the trustees have read any relevant guidance
• Submit a trustee declaration form signed by all
trustees (CC5c)
Once the online form has been submitted, the
Charity Commission normally get in touch with the
prospective charity within 45 days to request further
information or seek clarification on the application,
if necessary. It is rare for the Commission to register
a charity without any further communication so this
should be factored in when considering timescales
3
4. Deciding whether to keep the old charity in
kkkexistence
If the trustees do not want to keep the old charity
running, they need to ensure that it is dissolved in
accordance with the provisions contained in the
governing document. Further Charity Commission
guidance on dissolution is available on its website,
as is the form to remove the charity from the Charity
Commission register.
To complete the form, the trustees will need:
• The charity’s last full financial year’s income
• The reason for closing the charity – this should
be recorded in the minutes of the meeting when
trustees decided to close
Alternatively, they can choose to keep the old
charity in existence and link it to the new CIO.
Linking the two charities is a separate process and
further guidance on this can be found on the Charity
Commission’s website. This process is permitted
where the two charities are connected or have the
same trustee board.
The main benefits of linking the two charities are
that:
1. The old charity which is already established and
known still exists and can be used to develop
the identity of the new CIO.
2. The two charities will have the same charity
number and can produce one set of accounts.
3. If the old charity is likely to have legacies in its
name, it may be worth keeping it on the Charity
Commission register until any such legacies
have been received – potentially for many years.
The form needed to the link the two charities is
straightforward and is estimated to take no longer
than seven minutes to complete. The outcome can
be checked online after approximately 20 days.
the old charity’s financial year.
Further advice/guidance
The Charity Commission has issued helpful
guidance on this in their ‘How to register a charity
(CC21b)’ guide.
Model constitutions for the
Association Model and Foundation Model can be
found on the Charity Commission’s website at:
https://www.gov.uk/government/uploads/system/
uploads/attachment_data/file/390170/AssociationModelConstitution.pdf
and
https://www.gov.uk/government/uploads/system/
uploads/attachment_data/file/390171/FoundationModelConstitution.pdf
We would also be pleased to provide further
guidance on this process, and assist in helping you
set up your CIO.
If you would like to discuss any matter arising from
this please contact Chris Harris ([email protected]
co.uk) or your usual MHA MacIntyre Hudson contact.
Chris Harris
Partner
MHA MacIntyre Hudson
June 2015
This article is designed for information purposes only.
Whilst every effort has been made to provide accurate
and up to date information, it is recommended that
you consult us before taking or refraining from taking
action based on matters discussed.
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not-profit
5. Other considerations
Care should be taken over the date of handover.
There are significant administrative and potentially
cost, savings if the transfer happens at the end of
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