This week, a quick reminder on what CIO’s are for those looking at setting up a charity following some enquiries from clients. Thank you to my colleague Maryam Gillis for her help with this guide.
As you may all know, a CIO (charitable incorporated organisation) is a corporate structure designed exclusively for charities in England and Wales.
A CIO is a common alternative to other legal structures for charities (charitable companies, trusts, etc.) as members and trustees of a CIO are usually not personally liable for debts or liabilities the CIO may become subject to (under normal circumstances).
The difference between a commercial company and a charity (such as a CIO) is fundamentally that a charity must be set up for the benefit of a sufficient section of the public, and for purposes which the law regards as charitable. Because of this difference, a charity is limited in that it:
- must operate in a way that is in the best interests of the charity
- usually cannot pay its directors/managers/trustees
- can only apply its money and assets to carry out its charitable purposes; and
- cannot distribute its surplus money to its members.
In essence then, the application of the CIO’s income is to promote the charity’s objectives, and not to give any sort of financial benefit to members, directors/trustees/managers, or anyone connected with them.
A CIO will have to register with the Charity Commission but not Companies House.
To start with, the first decision will be which model to go with from either the ‘foundation’ model, or the ‘association’ model.
The first of these is where the CIO will have a ‘narrow’ membership of only trustees/managers and the second is where the CIO will have a wider membership, including members other than the charity trustees, who will have the power to vote, for example, at an annual general meeting.
The next key question is around trustees. Regardless of the charity’s legal format, the trustees are its governing body – they will have general control and management of the charity’s administration with a minimum of two or three trustees, in the interests of transparency and good governance.
Trustees will also have to ensure the charity is carrying out its purposes for the public’s benefit, they will manage the charity’s resources and act in the charity’s best interest.
Next comes questions on constitution – the CIO will also have to have ‘charitable purposes for the public benefit’. This means that for an organisation to uphold their charitable status they must exist in a way which benefits the community. The constitution will need to state outcomes, who the CIO will be aiming to help, and how it will achieve the intentions, plus certain provisions to conform with the Charity Commission’s requirements and charity law regulations.
This then leads to the creation of a governing document (on the basis that the name chosen can be used and does not need any external consents) and an application to the Charities Commission. The Commission looks at each application on an individual basis and in particular the details of an application to register a new charity.
Please note therefore that the more detail which can be given when the application is made, the better the chance it will have of being approved the first time.
Usually, the Charity Commission says that it makes a decision within approximately 40 working days from the date of an application. However, individual cases may take longer.
Having done all of this, the CIO will need to file annual accounts, and submit an annual report to the Charity Commission each year plus an independent examiner’s report, or an audit of the accounts if the income is over certain limits.
Broadly speaking, a charity is, and is meant to be, subject to the Commission and public scrutiny.
In conclusion, the government’s guide to setting up CIO’s (Guidance to help you set up and run your charity) would be a useful next stop for any further information or please get in touch to discuss the above or less heavily regulated charitable structures such as community interest companies.
Regards to all,
Roger
