CHARITABLE
INCORPORATED
ORGANISATIONS
This sheet gives some basic information about the charitable
incorporated organisation which is due to begin to become available
to charities from January 2013.
CHARITABLE
LIMITED
COMPANIES
There are three
The Charities Act 2006 Schedule 7 (now Charities Act 2011, Part 11)
created an alternative to the company limited by guarantee as the way
in which charities become incorporated. It is called the CHARITABLE
INCORPORATED ORGANISATION or CIO. This is a limited liability
organisation registered with and accountable only to the Charity
Commission (but NOT to Companies House). Like a limited company or a
community benefit society, it is a separate legal identity from its
members and therefore can, in its own right, own property, employ
people and enter into contracts.
New charities wishing limited liability and existing charities that wish to
have limited liability can choose to adopt this structure, rather than a
company limited by guarantee (CLG). Mergers and reconstructions
involving CIOs will also be easier.
New charities wishing to register as CIOs and existing unincorporated
charities wishing to incorporate can now register as CIOs. The final
tranche will be existing charitable companies that want to convert to
CIOs and thgis is expected to become available during the early part of
2014.
The CIO has a specially designed “constitution” in reasonably plain
English. There are two models – one for membership (Association)
organisations and another for non-membership trustee-only (Foundation)
organisations.
The Constitutions will contain provisions currently in Charity Commission
models that:
 prevent disposal of assets to members
 place duties of care, transparency and good faith on trustees
 place duties on members and trustees to act in best interests of the
CIO, its beneficiaries and service users.
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Members can elect to limit their liabilities to a fixed sum or to have no liability at all. There
is an option for trustees not to be members of a CIO but they cannot take any personal benefit
(apart from legitimate expenses) without first disclosing all personal interests in the benefit –
both their own and interests of connected persons.
CIOs will be able to amend their constitutions, merge, dissolve or transfer assets to each other
in much the same ways as existing charities can.
The CIO only needs to register with the Charity Commission and present annual
reports/accounts and returns to it. The Commission will be the sole regulatory body and will
not charge fees for registration or filing, at least for the time being. However the 2006 Act
gives the Commission power fine charities up to £2500 for late delivery of accounts and
returns. This power will only be used if the voluntary “naming and shaming” scheme currently
in place is not successful in encouraging prompt filing.
POSSIBLE DISADVANTAGES OF THE CIO:
Conversion Process: Unincorporated charities converting to CIOs will use a similar procedure
to incorporation as companies, except they will make the application and submit their
adopted constitution directly to the Commission. The CIO will have a new charity number and
the unincorporated charity will have to dissolve and transfer its assets and liabilities to the
CIO. As yet there is no information on the actual process by which existing CLGs with charity
numbers or Community Benefit Societies will convert to CIOs, although the intention seems to
be that no new organisation will be created: the CLG or CBS will simply “become” a CIO.
The pros and cons of whether an incorporated charity should stay as a limited company or
convert to a CIO are shown on pages 8 and 9.
Lack of Flexibility in the Constitution: the Commission have indicated that they expect
organisations to adopt the models as written and will not welcome substantial amendments to
the standard clauses. In particular, this means that, for example, a written resolution of a
CIO‟s members can only be passed when ALL members have signed it – see page 8 box 8.
Fewer statutory rights for members: certain rights available to company members under the
Companies Act are not available to CIO members. These include:
1. Right to a proxy vote
2. Right to demand a poll (count of votes on a show of hands) at a general meeting
3. Right to remove trustees by a resolution passed in a general meeting
4. Right to pass written resolutions instead of calling a meeting to pass them.
However the Charity Commission‟s model constitutions provide for each of these.
Pension providers: Unincorporated organisations who have staff on defined benefit or final
salary pension schemes will need to consult with the Pension provider concerning any deficit
in the fund and resulting liabilities under the 2005 Pensions Regulations. For more
information go to:
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https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/353959/Defined_benefit_pensi
on_schemes_questions_and_answers.pdf
Credibility: Charity specialist lawyers and accountants have raised the issue of whether a
very new type of corporate structure will be readily understood and accepted by traditional
(and rather conservative) financial institutions such as banks and insurance companies.
Hidden costs: Although the Charity Commission do not propose to charge for incorporation or
conversion, organisations will have to plan for the cost of, for example, new stationery and
website etc details, company de-registration, transfers of property, novation (transfer) of
third-party contracts, increased accountancy fees and insurance premiums.
The Commission’s latest guidance is at:
https://apps.charitycommission.gov.uk/Start_up_a_charity/Do_I_need_to_register/cios/default.aspx
The draft model constitutions are at:
http://www.charitycommission.gov.uk/media/94471/cio-foundationmodelconstitution.pdf
(Foundation model where only the Trustees are members)
http://www.charitycommission.gov.uk/media/94463/cio-associationmodelconstitution.pdf
(Association model where the CIO has a wider membership than its board of trustees)
OTHER FACTORS TO CONSIDER
1. CIOs must call AGMs each year whereas private limited companies are no longer required
to do so
2. Delays in implementing CIO conversion for existing charities – see page 5 below
3. No minimum income threshold for registering CIOs (other charities must have at least
£5000 income)
4. Only charity law duties apply to trustees – not company law duties
5. The Chairperson has an automatic casting vote at CIO general meetings, whereas under
company law, s/he only has this if s/he is also a member of the company and the Articles
provide for it
6. Members, as well as trustees, have a legal duty to act in the best interests of the CIO
7. CIO members‟ and trustees‟ details are not open to public inspection (apart from names
and service addresses)
8. There is no requirement for a CIO to keep a register of mortgages and legal charges
9. Charity accounting and reporting rules apply rather than company accounting and
reporting rules – see page 5 below.
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10. When the CIO becomes available to new charities and then existing charities, the company
limited by guarantee will still be an option for a charity to register as an incorporated
limited liability body – see pages 8 and 9 below.
SETTING UP A CIO
1. Organisations must choose one of Commission‟s free model constitutions
a. Foundation model where only the voting members are the trustees
b. Association model where there is to be a wider voting membership
See pages 6 - 7 for details of the constitution‟s contents
3. Once the constitution has been adopted, the organisation must follow the Charity
Commission‟s normal on-line registration procedure
4. The Charity Commission may refuse to register an organisation as a CIO if:
o its registered office is not in England or Wales
o its objects are not exclusively charitable
o its activities are not exclusively charitable
o its activities do not demonstrate sufficient public benefit or there is excessive „private
benefit‟ – e.g. to trustees or people connected to the trustees
CONVERTING TO A CIO
1.
Unincorporated charities will be able to convert to CIOs from March 2013
2. The procedure will be similar to incorporating as a company except the application to
register is made on-line to the Charity Commission once the constitution has been adopted
3. The CIO will have a new charity number
4. An existing unincorporated charity must dissolve and transfer assets and liabilities to the
CIO
5. Charitable companies are due to be able to convert to CIOs from 2014.
6. No date has yet been set for Community Benefit Societies or CICs to convert to CIOs.
7. The process is designed so that no new organisation is created: the company/CBS simply
becomes a CIO and so a company‟s charity number does not change
8. See page 6 for the detailed implementation timetable .
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ACCOUNTING AND REPORTING RULES
£
All CIOs must submit accounts regardless of income but no independent examination will
be required if the annual income less than £25000
£
CIOs with annual incomes of less than £250,000 can submit receipts and payments
accounts
£
CIOs with annual incomes of £250,000 or more must submit accruals accounts
£
CIOs with annual incomes under £500,000 can submit independently examined accounts
£
All CIOs must submit annual reports and annual returns to the Charity Commission
RECORD KEEPING

All CIOs must keep registers of members and trustees

Members‟ details are their names and addresses, and dates of joining and leaving

Trustee details are name, former name, service address, date of birth, nationality and
business occupation

Corporate trustee details are name and registered office address
DISSOLVING CIOs

The Insolvency Act 1986 and the Company Directors Disqualification Act 1986 apply to
CIOs in the same way as to companies, so the trustees of an insolvent CIO can be made
liable for its debts on winding up if they have been guilty of wrongful or fraudulent
trading

Solvent CIOs can be wound up voluntarily by an application to the Charity Commission
using a similar procedure to winding up a solvent company
LIABILITIES OF A CIO’s TRUSTEES
Its trustees can be made liable for a CIO‟s debts or for claims against it if they:
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
have been negligent or dishonest in the way they have managed the CIO or dealt with its
assets or property



have acted while disqualified under Charities Act 2011
are in breach of a statutory duty as charity trustees
have given a personal guarantee to a creditor of the CIO (e.g. a landlord)
IMPLEMENTATION TIMETABLE
From 10th December 2012 organisations newly registering as charities with annual incomes
of £5000 or more can apply to register as CIOs. (Those with incomes of less than £5000 can
apply from January 2014)
Existing unincorporated charities can apply to convert to CIOs as follows:
 Those with incomes of £250,000or over from late March 2013
 Those with incomes of £100,000-£250,000 from May 2013
 Those with incomes of £25,000-£100,000k from July 2013
 Those with incomes of £5,000-£25,000 from October 2013
 From January 2014 – all unincorporated charities can apply
Existing charities registered as companies limited by guarantee can (possibly) apply to
register from 2014. No date has been fixed for when Community Benefit Societies or
Community Interest Companies can apply to convert to CIOs.
CONTENTS OF A CIO’s CONSTITUTION
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Name
Location of principal office as being in England or Wales
Objects
Powers
Application of income and property
Benefits and payments to trustees and connected persons
Conflicts of interest and conflicts of loyalty
Liability to contribute to assets on winding up
Membership admission, rights and duties (association model only)
Members‟ decisions
General meetings – calling , notices procedure
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Charity trustees – appointment, retirement, removal, information for new Trustees
Decision-making by Trustees and delegation
Trustees‟ meetings – calling, chairing, procedures
Validity of trustees‟ decisions
Execution of documents
Use of electronic communication
Keeping Registers
Minutes
Accounting and reporting obligations
Rules
Disputes
Amendment of constitution
Voluntary winding up and dissolution
Interpretation
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LIMITED COMPANY OR CIO?
1. You need to get set up quickly and can‟t wait for the CIO
2. You want to have a choice of models and wording of your governing
document – e.g. Charity Commission, Charity Law Association, other
solicitors‟ model
BECOME OR
REMAIN A
LIMITED
COMPANY IF
3. You do not wish to be obliged to call an AGM each year but want to provide
members with a statutory right to call a general meeting at any time
4. You wish to give members a statutory right to vote by proxy
5. You wish to give members a statutory right to call for a count of votes (poll)
at general meetings
6. You wish to give members a statutory right to remove directors/trustees
from office at a general meeting (unless the CIO rules enable you to include
this right or remove it later)
7. You wish amendments to the Articles to take effect at the end of the
general meeting where they were passed (or if to objects) on registration at
Companies House rather than on acceptance by the Charity Commission
8. You wish to have a statutory right to pass written resolutions as a company
(e.g to do ordinary business (51% majority vote) or to amend the Articles by
special resolution on a 75% majority). CIO written resolutions need 100% of
members‟ signatures.
9. You will need to mortgage or place a legal charge over the property or
assets of the charity and funders require that these will have to be
registered at Companies House
10, You are already incorporated and have staff in defined benefit or final
salary pension scheme which is in deficit – as liability for the deficit may
transfer from the pension provider to you as the employer on conversion to
a CIO
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LIMITED COMPANY OR CIO?
1. The organisation is to be a newly registered charity with an income of
less than £5000. Unlike other structures, there is no minimum
income requirement for registering a CIO
2. You wish to have the option of members having no liability to
contribute to the assets of the CIO on insolvency
BECOME OR
CONVERT TO
A
CIO
IF
3. You wish the Trustees to be subject only to charity law duties and
not the 2006 Companies Act duties (e.g. regarding conflicts of
interest and acting in the best interests of the company) as well
4. You wish to place duties of acting in good faith and in the interests of
the charity on the members as well as the trustees
5. You want to be obliged to hold an AGM each year
6. You wish the Chair to have as second or casting vote at general
meetings whether or not s/he is a member of the CIO
7. You don‟t want members‟ details to be open to public inspection –
however Trustees‟ names and service addresses will be open to public
inspection in the same way as for companies.
WHERE TO GET MORE INFORMATION
Sandy Adirondack has produced a detailed guide the CIO her website at: www.sandya.co.uk/managing.htm. This website updates the Voluntary Sector Legal Handbook available
from Sandy or from the Directory of Social Change All phone enquiries: 08450 77 77 07
London office
Liverpool office
24 Stephenson Way
Federation House
London NW1 2DP
Hope Street, Liverpool L1 9BW
Tel: 020 7391 4800
Tel: 0151 708 0117
Fax: 020 7391 4808
Fax: 0151 708 0139
Website: http://www.dsc.org.uk/Publications/PublicationsA-Z
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INFORMATION SHEETS available from VAS:
Accessible Organisations
Acquiring and Managing Premises
Action Planning
Business Planning
Campaigning and Lobbying
Charitable Incorporated Organisations
Closing Down
Community Interest Companies
Constitutions
Contracts and Procurement
Data Protection
Disciplinary and Grievance Procedures
Due Diligence
Employing a Worker
Equality and Diversity
Guarantee Companies
Handling Redundancies
Health and Safety
Incorporated Charities
Insuring your Organisation
Involving Volunteers
Legal Structures
Management Committees
Monitoring and Evaluation
Parents and Carers at Work
Quality Assurance
Safeguarding Vulnerable People
Sickness Absence Management
Starting Up
Trading and Fund-raising
The Circle
33 Rockingham Lane
Sheffield S1 4FW
Tel: 0114 253 6600 Fax: 0114 253 6601
Email: info@vas.org.uk Website: www.vas.org.uk
Registered charity no: 223007
Company limited by guarantee no: 215695
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