01 March 2012

Charity vaunteth not itself


The new Charitable Incorporated Organisations


Whoever said, “every charitable act is a stepping stone towards heaven” probably didn’t contemplate the Charities Act 2006!

We will shortly have a new form of incorporated body: the Charitable Incorporated Organisation, or CIO, expected to be with us in the spring of 2012. It joins a very select band of forms of incorporation with limited liability. For years we had only the Companies Act company, industrial and provident societies, and companies incorporated by statute or Royal Charter; in recent years they have been joined by the open-ended investment company (OEIC), the LLP, the community interest company (CIC), the European EEIG and SE, and now the CIO.

For many years it has been common for charities to be registered as companies, not least to get limited liability for the trustees. The relationship between charity and company law has always been a little tense, and it started to become necessary for the Companies Act to make special provision for charitable companies. Now it has been realised that it makes more sense to have an entirely separate form of incorporation for charities, overseen by the Charity Commission rather than Companies House and the BIS.

There have been long delays in bringing the new legislation into force, but the latest information is that should be in by the spring – though there is some scepticism about whether this timetable will be kept to. To avoid a logjam of applications, existing charitable companies may not be allowed to apply until later. There will be a procedure for converting existing companies to CIOs, so there will be no need to transfer assets from the old company to the new CIO – though that will still be needed to turn an unincorporated charity into a CIO.

Charities with complicated governance structures or membership schemes would be well advised to start drafting their new constitutions now, if they want to take up the new format as soon as it becomes available. More information is on the Charity Commission’s website. The legislation setting out much of the detail on how CIO’s will work (which is not yet in force) is in Schedule 7 to the Charities Act 2006.

2 comments:

  1. Still no sign of the legislation bringing CIO's into force; an article in Solicitors Journal bemoaning this is here: http://www.solicitorsjournal.com/story.asp?sectioncode=3&storycode=20005&c=3&eclipse_action=getsession

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  2. According to the Hodgson review of the CA2006, the secondary legislation that will create CIOs will soon be laid before Parliament and should be operational by the autumn. It says "This is very welcome progress,if not before time." But the regulations allowing existing charitable companies to convert will not be laid until 2013. the report recommends some minor changes to the legislation and it is to be hoped that this is not used as an excuse for further delay. http://www.cabinetoffice.gov.uk/sites/default/files/resources/Review-of-the-Charities-Act-2006.pdf

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