The perfect time to review your charity
The Charity Commission is now accepting applications to register Charitable Incorporated Organisations (CIOs) — the new legal form for a charity.
The CIO is the first legal structure in England and Wales which has been tailor-made for charities.
Trustees of unincorporated charities are exposed to potentially unlimited financial liability whereas the new CIOs will enjoy limited liability status in much the same way that a charitable company currently does.
Historically, some charities have decided not to incorporate on the basis that the charity would have to bear the burden of dual regulation, with annual returns having to be filed to both the Charities Commission and Companies House. However, the new CIO offers the same benefits of incorporation without the need to report to Companies House - the Charity Commission will be the sole regulator.
The effect of becoming a CIO is that the organisation has a legal personality. This means it can conduct business and own property in its own name and will avoid the need to update records everytime there is a change of trustees. A CIO will, therefore, be a particularly attractive option for those charities that employ staff, enter into contracts and/or own land.
How does it work?
In short, the procedure will be to register a new CIO with the Charity Commission, transfer the charity’s assets to the new organisation and then dissolve the old structure. This will require careful analysis of the current governing documents and detailed planning to ensure there are no omissions which could cause expensive difficulties later on.
The new charitable structure will probably be most attractive to medium-sized charities, earning between £25,000 and £500,000 per year.
Before doing anything, the charity should discuss the pros and cons with their professional advisors to be sure the structure is right for them. Certain assets can be tricky to transfer from the old charity to the new CIO and will need careful thought. It is also vital to get proper advice on how to make sure legacies in wills to your existing charity are not lost as a consequence of the formation of the new CIO.
For all those interested, this is an exciting opportunity to modernise your charity or create a new one whilst securing the benefit of limited liability for current and future trustees. This should help you with future trustee recruitment and offer the perfect platform to undertake a complete “health check” of your charity.
Our specialist Charity Law team is recommended by The Legal 500 and is on hand to help.