Section 34 and Schedule 7 of the Charities Act 2006 laid down the foundations for a new sort of charitable body which is to be known as a ‘Charitable Incorporated Organisation’. Currently in order to set up a charity, a person (or persons) is required to form a Company Limited by Guarantee. This means that the charity body will be governed by both the law surrounding charity and those that cover standard companies. This has lead to some difficulty where generally the company law is intended to manage companies with profit in mind, rather than charitable objectives.
The Requirements and Changes
The idea of a Charitable Incorporated Organisation is to allow a body to have the advantages of a company structure, but without the governance of two forms of legislation. To this end schedule 7 states that a charitable incorporated organisation will:
- Be a corporate body
- Have a constitution
- Have a principal office
- Have more than one member
- And those members are or are not liable to contribute a monetary amount if the CIO is ever wound up
This last point is a change from the current stance, where the members of a charity company limited by guarantee are always expected to offer this sort of guarantee in relation to liability. Otherwise the members are not liable for any debt accrued by the CIO in its operation.
CIO's will place a stricter burden of care on trustee's to ensure than the charity is used responsibly. There will also be stricter access requirements to personal information about the trustees.
The advantages of Charitable Incorporated Organisations
- Single registration and regulation — CIO's will only need to register with the Charities Commission and not Companies House.
- Single annual report and accounts — CIO's will not have to submit reports/accounts to Companies House as charities currently have to, but only to the Commission under the Charity Law.
- Lower costs — there will be no fee for registering a new CIO.
- Simple Constitution — model constitutions will be drawn up for use by new CIO's.
- Penalisation — There will be no penalties for a CIO based on the conduct of its directors
- Legal Freedom — EC company law directives will not apply to CIOs
Delays in Implementation of CIO Provisions
The aim was originally to begin implementing the CIO provisions in late spring 2010. However delays have meant that Charitable Incorporated Orgainsations will probably not be available until 2011. At that time, companies registered as charities may look to be converted into a CIO by application to the commission.