Many charities are actively considering whether to convert their unincorporated charity to a Charitable Incorporated Organisation (“CIO”). For many, it is the incorporated status of the new entity which most appeals. A CIO is not a limited company; it is not registered at Companies House. It is a form of incorporated charity regulated solely by the Charity Commission (“CC”).
An unincorporated charity is not a legal entity, so the powers of holding property, liability exposure and similar rest with the Trustees; they are never passed onto the entity.
By forming a CIO the title of property can be held by the charitable entity, liability is limited within the confines of the CIO and it can enter into contracts in its own right.
If registering a CIO from scratch, the process is similar to a normal charity registration, with the need to write a constitution and apply to the Charity Commission with a formal application. Model documents are available on the CC website to assist new applicants.
If you are looking to convert your existing charity to a CIO there is a clear stepped process to follow.
The new CIO is formed, the assets and liabilities of the unincorporated entity are transferred to it and the old trust or charity is dissolved.
In practical terms the title of property will have to be vested in the new CIO. This is achieved with a vesting declaration under section 310 of the Charities Act 2011.
Existing assets, contracts and commitments will have to be assigned to the CIO. The old constitution will have to be reviewed to ensure the transfer satisfies any conditions imposed in it.
If your charity has staff, TUPE may apply to the transfer of staff so legal advice should be taken to ensure contracts of employment are not breached. As well as these formalities, there are other practical issues to consider. Your suppliers, bankers, funders, stakeholders and regular donors will need to be informed to ensure continuity of services and income flow.
If you claim gift aid you must ensure gift aid paperwork is updated so that the right to reclaim is not disrupted which could have a direct impact on cashflow.
The name of the CIO must be displayed in all communications so that it is clear to the outside world that you now operate through this entity. Letterheads, websites, e mail, insurance policies, pension providers, etc must all be updated.
The concept of a CIO is not a new one. It is a technical process to manage the stages of conversion but advisers such as us can help with that. None of the requirements are alarming in their difficulty but it is important to ensure everything is completed in the correct order and within the regulations to secure against the loss of income, operational time or property.
There are alternatives to the CIO such as the more common incorporation of a limited company, but CIOs now account for a significant proportion of new incorporations so it is an option to put on the table if you are looking to adopt a more formal structure.
By Sarah Watts, Thomas Westcott Partner and member of the Charities and Not for Profit team.
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