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The CIO as a charitable structure: the pros and cons

The CIO as a charitable structure: the pros and cons

Now that the long-awaited Charitable Incorporated Organisation (CIO) has been with us for over a year we wanted to share our experiences in advising and setting up charities as CIOs and so jointly with Henmans Freeth we held a roundtable discussion with voluntary organisations – including some who have already taken the plunge and created CIOs - at Henmans Freeth in Oxford last week.

So how is this new CIO charitable structure shaping up?

Over 1,700 CIOs have been registered by the Charity Commission in just over 16 months and another 1,000 north of the border registered with OSCR and anecdotal evidence from both regulators is that the (S)CIO is becoming a more popular option, especially for start-up charities who are attracted by its simple structure, one regulator and the fact that company law does not apply to them (meaning its trustees are not also company directors). The duty of members to act in the best interests of the charity is helpful.

Aside from the lower administration in complying with just one regulator’s requirements, the CIO might be a suitable vehicle for joint ventures or other collaborative activity between charities or for the delivery of statutory services being outsourced from local authorities. It can help with risk management around delivery of activities, employment obligations and so on.

Also, as the Charity Commission brings the CIO into existence there is none of the to-ing and fro-ing in arranging for the passing of additional members’ resolutions to make any changes to a constitution that may be required by the Commission to secure registration, in particular in respect of the proposed wording for the charity’s objects (although there is still a process to be gone through around approval of a draft constitution by proposed trustees and then ratification post-registration, once the CIO has come into being).

This upside could also be a downside with the CIO option – if an entity needs to be created as soon as possible - for example in order to apply for funding even before charitable registration is secured, in which case the best bet is probably going to remain the good old company limited by guarantee rather than waiting for up to '40 working days' to bring a CIO into being.

Other potential downsides of the CIO include the well-publicised absence of a charges register which may deter potential funders (unless the charity owns registered land against which lending can be secured) and a continuing low level of awareness among less well-informed banks, landlords and the general public.

One particular concern which came to the fore during discussions was the loss of an existing charity’s filing history if it decides to re-register as a CIO. A CIO will have a new registered charity number. Those charities with a track record of success, say in grant funding and compliance, may wish to think carefully about seeking to preserve this when converting to a CIO, if appropriate by retaining the original charity as a shell charity on the Commission’s online register for this purpose (and also as a precaution against the possible loss of future legacies).

We were able to share with participants the latest update from Cabinet Office on the timeframe for existing charitable companies wishing to convert to CIOs. This is not likely to be possible until some time in 2015 (although for those companies which cannot resist the allure of operating as a CIO until next year, it is already possible to set up a CIO and to transfer the company’s assets and responsibility for its liabilities to the new charity).

A point endorsed by those who have gone through the process was the sense in appointing a project management leader (or team) within your charity to deal with all the detail: you may not require professional services in setting up a CIO but you should not underestimate the work involved in arranging to transfer an existing charity’s operations to a brand new shiny CIO. We recommend taking professional advice in respect of transferring staff contracts to ensure TUPE compliance and to review pension arrangements.

If anyone would like our PowerPoint slides from the discussion or if you would like to talk about your particular circumstances, please contact us.  (01865 261100)

Robert Nieri (0845 274 6902)