Opting to incorporate: Looking at CIO and company structures.

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From the Wales Charity Law and Governance Conference 2014.

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Opting to incorporate: Looking at CIO and company structures.

  1. 1. Opting to incorporate: Looking at CIO and company structures Martyn Robinson Solicitor, Geldards LLP
  2. 2. Overview 1. Why legal structure matters 2. What is a CIO? 3. Advantages / disadvantages of CIOs and companies 4. CIO structures 5. Company structures 6. Issues to consider upon incorporation 7. Incorporating / registering 8. Transferring into the CIO / company
  3. 3. 1. Why legal structure matters • Trustee liability • Legal personality • Associated matters: - Certainty for third parties - Good governance
  4. 4. 1.1 Trustee liability • Unincorporated charities: - Trustees are collectively liable for debts of the charity - Trustees may be personally responsible - Insurance cover usually taken out - Relief of liability, if acted honestly and reasonably - Commission looking for imprudence, or legal breaches
  5. 5. 1.1 Trustee liability • Incorporated charities: - Liabilities are met out of corporate assets of the charity - Trustees simply manage the incorporated body - Members of the charity have limited liability - General principles of prudence apply to trustees though
  6. 6. 1.2 Legal personality • Unincorporated charities: - Business conducted by the trustees collectively - Frequent problems with contracts / title to land - Administrative burden and cost • Incorporated charities: - Charity has separate legal personality - Can own land, employ staff, enter into contracts itself - Continuity / certainty of ownership
  7. 7. 1.3 Associated matters • Certainty for third parties: - More appealing to funders - Incorporated party contracting • Good governance: - Simple, modern governing document - Administrative process up to date
  8. 8. 2. What is a CIO? • A “charitable incorporated organisation" • Relatively new legal form only for charities • Corporate body not unlike a company • Automatically charitable once it exists • Attracts same tax treatments as charitable companies
  9. 9. 2.1 Usage of CIOs • New charities • “Transfer” to a CIO by existing unincorporated associations and charitable trusts • “Conversion” to a CIO by charitable companies and I&PSs (not yet available)
  10. 10. 3.1 Advantages of CIOs • Charity Commission simultaneously grants: - incorporation; and - charitable status • Charity Commission is sole regulator • No requirement to comply with company law • No fee for registration • No penalties for late filings (at the moment) • Simple structure, intended for charities
  11. 11. 3.2 Disadvantages of CIOs • Longer set-up time • Exists only upon registration • Lack of awareness outside sector • No charges register • CIO ceases to exist upon loss of charity status • Not available for exempt charities (e.g. I&PSs)
  12. 12. 3.3 Advantages of companies • Can be incorporated within hours • Exist immediately, and can enter into contracts etc. • Have an external charges register, for creditors • Continue to exist upon loss of charity status • Are a well-established and familiar structure
  13. 13. 3.4 Disadvantages of companies • Charity Commission application still required • Dual regulation by: - Charity Commission; and - Companies House • Requirement to comply with company law • Fee for registration • Penalties for late filings
  14. 14. 3.5 Charitable company over CIO? • Larger organisations • Familiarity with: - Companies Act 2006; and - Companies House processes • Likelihood of charging property • Overseas involvement • Requirement for known company structure
  15. 15. 4. CIO structures • Foundation model: - Generally for transfers from charitable trusts • Association model: - Generally for transfers from unincorporated associations • Both have a ‘constitution’ as governing document • Note that a foundation CIO can change to the association model, and vice versa
  16. 16. 4.1 Foundation model CIO • The only members of the charity are the trustees • Akin to: - a charitable trust; or - a company where all members are company directors • Run by a small group of people • Trustees will make key decisions • Trustees will appoint trustees • Likely long term-lengths for trustees
  17. 17. 4.2 Association model CIO • The voting membership can be wide and diverse • Akin to: - an unincorporated association; or - a company with a wide membership • Run by members as well as trustees, in some respects • Members will make certain decisions • Members will elect some or all trustees • Likely fixed terms for trustees
  18. 18. 4.3 Main differences • Foundation model: - trustees are members • Association model: - membership is wider than trustee board • Method of appointing trustees • No requirement for an AGM in a foundation model • Appropriate model may be self-evident
  19. 19. 5.1 Company limited by guarantee • ‘Articles of association’ as governing document • Trustees: - Responsible for management of the charity - Also company directors - Appointment provisions are specified in the articles • Members: - Vote on certain matters, including changes to the articles - Membership is flexible – can be the trustees, or wider • Key is flexibility
  20. 20. 5.2 Company limited by shares • Not generally a suitable structure, as members are entitled to dividends, and a share of assets upon a dissolution • Rare form for a charity, and not recommended
  21. 21. 6. Issues to consider upon incorporation • Whether opting for a CIO or company, consider: - Charitable objects - Administrative provisions - Governance to date
  22. 22. 6.1 Charitable objects • Have your activities drifted away from your objects? • Do your objects accurately describe what you do (your charitable purpose)? • Do they cover you for future planned activities? • Is the ‘class of beneficiaries’ accurate? • Is the ‘area of benefit’ accurate? • Is the wording up to date? • Charity Commission consent required to changes
  23. 23. 6.2 Administrative provisions • How do you want trustees to be appointed? • How do you want trustee retirements / board rotation to operate? • Is it appropriate for you to hold an AGM? • Do you need to specify any honorary roles? • Are practices to continue as before?
  24. 24. 6.3 Governance to date • Check – have the current trustees been appointed in accordance with your governing document? • Has the Charity Commission been notified of: - all updates to your governing document; and - changes of trustees? • Is land held in the name of the current trustees?
  25. 25. 7. Incorporating / registering • For CIOs, there is a single process of: - registration / incorporation with the Charity Commission • For charitable companies there is a dual process of: - incorporation with Companies House; and - registration with the Charity Commission
  26. 26. 7.1 Registration of CIO • Preparing to register: - Select constitution type (foundation / association) - Draft constitution, discuss and agree on key points - Approve and sign constitution - Sign ‘trustee declaration’ - Draft application to register with the Charity Commission - Ensure ‘public benefit requirement’ is met
  27. 27. 7.1 Registration of CIO • Securing registration: - Deal with any queries from the Charity Commission - Incorporation granted on registration - Registered charity number provided - Entry on public register - Obtain password for amending details online
  28. 28. 7.2 Incorporation of company • Preparing to incorporate at Companies House: - Draft articles of association, discuss and agree key points - Complete form IN01 / apply online / use formation agent - Pay fee, and secure incorporation - Receive company number
  29. 29. 7.2 Incorporation of company • Preparing to register at Charity Commission: - Sign ‘trustee declaration’ - Draft application to register with the Charity Commission - Ensure ‘public benefit requirement’ is met • Securing registration: - Deal with any queries from the Charity Commission - Registered charity number provided - Entry on public register - Obtain password for amending details online
  30. 30. 8. Transferring into CIO / company • Prepare transfer document • Pre-transfer issues to consider • Transfer process • Post-transfer issues to consider • Associated issues
  31. 31. 8.1 Prepare transfer document • Transfer agreement • Details of: - employees; - bank accounts; - investments; - property held (and whether on trust); and - intellectual property, other substantial assets
  32. 32. 8.2 Pre-transfer issues to consider • Notify funders / creditors / suppliers of transfer • Obtain consent to assignments of contracts where required • Notify staff of TUPE arrangements • Consider pension crystallisation
  33. 33. 8.3 Transfer process • Pass resolutions dealing with the transfer of: - the existing charity; and - the new CIO • Arrange execution of transfer agreement (and ancillary property docs if necessary) • Formally complete all documentation
  34. 34. 8.4 Post-transfer issues to consider • Dissolve existing charity (in accordance with governing document) • Notify Charity Commission to remove existing charity, or register a merger of the charities • Register any land transfers at the Land Registry • Apply to register CIO / company with HMRC
  35. 35. 8.5 Associated issues • Impact on trading subsidiaries - Where shares are held by nominees, transfer to CIO - Check processes in articles of trading company - Trading company becomes a subsidiary of the CIO - Deal with formalities • Impact on VAT - VAT position will be the same - Depends on business activities of the existing charity - Should be familiar with this
  36. 36. 8.5 Associated issues • Potential issues needing specialist advice - Permanent endowment property - Funder / bank charges - Pension deficit
  37. 37. Any questions?
  38. 38. More information • Make the Charity Commission site a ‘favourite’: - CIO guidance and information - Foundation / association model CIO constitutions - Model articles of association • ‘Registering as a Charity’ (CC21) • ‘Choosing and preparing a governing document’ (CC22) • ‘Public benefit’ guidance (PB1, PB2, PB3, summary) • ‘Hallmarks of an Effective Charity’ (CC10)
  39. 39. Thank You
  40. 40. Contact details Martyn Robinson DD: 029 2038 6532 E: martyn.robinson@geldards.com

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