Once a month, I spend an afternoon with the lovely people at Voluntary Action North Somerset, providing a free advice ‘clinic’ to local charities and voluntary organisations. One of the questions that has come up several times is ‘What is a Charitable Incorporated Organisation?’. So here’s a quick overview of what this new legal structure is and what it means for anyone thinking about setting up a charity.
If you’re setting up a voluntary group or a charity, you have several options when it comes to the form that your organisation takes. Up until earlier this year, the two main ones were:
1. An unincorporated association, which is essentially a group of people who work together for a charitable purpose. The association doesn’t have its own legal identity, so the people involved bear full responsibility for any liabilities that the group may incur. The group will also not be able to buy assets, enter into contracts or employ staff in its own name.
2. A company limited by guarantee, which is a legal entity in its own right and can own assets and enter into contracts in its own name. The company benefits from ‘limited liability’ for debts or lawsuits, meaning that its members or trustees are only liable for a small sum, usually about £10. Companies limited by guarantee are registered with Companies House and have to comply with various statutory requirements.
In addition to these legal forms, organisations wishing to benefit from charitable status have to register with the Charity Commission. This entails compliance with another set of requirements, as well as periodic reporting on the charity’s activities.
Because many smaller charities wanted to benefit from the limited liability and separate legal entity that come from being a company limited by guarantee, but did not necessarily have the time or resources to deal with the different registration and reporting requirements of Companies House and the Charity Commission, the government has introduced a new legal form: the Charitable Incorporated Organisation (CIO).
The CIO is like a company – but, crucially, is not a company – in that it has its own distinct legal status and provided members and trustees with limited liability. But it is also a fully fledged charity. This means that anyone wanting to set up a CIO needs only to register with the Charity Commission and has to comply with only one set of legal and reporting requirements.
Unfortunately, charities that are already incorporated in a different legal form, such as a company limited by guarantee, are not yet able to convert to CIO status. However, this should be possible some time next year, once the necessary legislation has been passed.
There’s more information about Charitable Incorporated Organisations on the Charity Commission’s website, which also provides model governing documents and answers to various frequently asked questions.
The new CIO legal form will not be suitable for all charities, but it is likely to be popular for small to medium organisations that want to employ staff or to enter into contracts in their own name. And while the reduction in bureaucracy may not seem a lot, anything that allows such organisations to spend less time on paperwork and more time on their charitable activities should surely be welcomed.