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. www.macintyrehudson.co.uk/sectors/ not-profit 5. 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