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Is the CIO right for you?


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By Geldards at WCVA's Charity Law Conference 2013.

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Is the CIO right for you?

  1. 1. The CIO: Is it the right choice for you?Catherine Nightingale, Senior AssociateTuesday 21 May 2013
  2. 2. What this session will cover• What is a CIO?• Key features of a CIO• Unincorporated bodies v CIO• Charitable companies v CIO• How to achieve CIO status
  3. 3. What is a CIO?• New legal form only for charities• Included in Charities Act 2006, in force in 2013• Corporate body not unlike a company• Automatically charitable• Attracts same tax treatments as charitablecompanies
  4. 4. Advantages of CIO• “Does what it says on the tin” – CIO• It’s Charitable – know it’s a charity• It’s Incorporated – know it’s trustees have lessliability• It’s an Organisation – know its got own legalpersonality• No-one other than charities can use it• Magic registered charity number
  5. 5. Advantages of CIO• Charity Commission (not Companies House)simultaneously grants• Incorporated status AND• Charitable status• Absence of Companies House involvementmeans:• Only 1 regulator – Charity Commission• No knowledge of company law needed• No fines / penalties for late filing
  6. 6. Disadvantages of CIO• Set up time – 40 working day turnaround• Lack of awareness outside sector• Applicable legislation not gathered in one place• No charges register – how will funder’s besatisfied?• Requirement to file regardless of size• Loss of charity status means organisationimmediately ceases to exist
  7. 7. Why would a new charity be a CIO?• Model constitutions available• Free registration at Charity Commission• Liability protection for trustees• Own legal identity• It can contract, employ, own property• Don’t need to understand “company” law• Possible lighter touch regulation
  8. 8. Reasons why existing unincorporatedcharity might “convert” to a CIO• Secure some protection from personal liability• Obtain a legal personality in which tocontract / employ staff, own property• Modernise• Provide certainty on structure
  9. 9. Reasons why existing charitable companymight “convert” to a CIO• Avoid additional regulation by Companies House• Avoid fee/ penalties for late filing• Remove need to comply with company law• Potentially make trustee recruitment easier• Potentially to encourage donations
  10. 10. Reasons why an existing Industrial &Provident Society might “convert” to a CIO• Possible perception that CIO is less old-fashionedthan I&P• If non RSL I&P, no “tradition” to remain as I&P• Remove annual expense of maintaining I&P• Remove confusing language of I&Ps• Avoid need for knowledge of specialist I&Plegislation
  11. 11. Model CIO Constitutions• Two versions available:• Foundation model• Association model• See Charity Commission website• No interactive model available• Use of model recommended by Commission• Language determined by principle office• No Welsh translation available (yet)
  12. 12. Which model Constitution to useFoundation model•Akin to trust or company where all members =directors•Use where trustees = members•Run by small group of people•Trustees will make key decisions•No time limit on length time trustees serve•Trustees will appoint trustees
  13. 13. Foundation ModelConstitution& DissolutionTrusteesManagementFunctionMembersCIO=
  14. 14. Which model Constitution to useAssociation model•Akin to unincorporated association or companywith wide membership•Use where charity wants a wider votingmembership•Members will make certain decisions•Members will appoint some / all trustees•Trustees serve for fixed terms
  15. 15. Association ModelConstitution& DissolutionTrusteesManagementFunctionMembersCIO≠Appoint / Elect
  16. 16. Both Constitutions must include• Name of CIO• Name of 1sttrustees• Exclusively charitable objects for public benefit• “Standard charity trustee provisions”• (retirement, removal from office, meeting procedure,personal benefit)• “Standard member provisions”• (retirement, termination of membership, general meetingprocedure)• If to have a seal, how it is applied
  17. 17. Both Constitutions must include• If proxy appointment allowed, detail onappointment, rights and termination• If postal voting allowed, details as to how operates• If alternatives to decision at GM or resolutions atGM, detail alternatives• If alternatives to decision at trustee meeting orresolution at trustee meetings, detail alternatives• If weighted voting, what weighting is• Whether electronic communications are permitted
  18. 18. Main differences between twoConstitutions• Foundation: members = trustees• Association: not all members are trustees• No membership fees in Foundation• No requirement for AGM in Foundation
  19. 19. When can you be or become a CIO?• January 2013 – new CIO (income £5,000)• 1 March 2013 – new CIO + transferfrom unincorporated charityexisting income £250k +• 1 May 2013 – as above but incomebetween £100k - £250k• 1 July 2013 – as above but income between£25k - £100k
  20. 20. When can you be or become a CIO?• 1 October 2013 – as above but income between£5k - £25k• 1 January 2014 – as above but income lessthan £5,000 and new CIO lessthan £5,000• During 2014 – conversions from companiesetc (provisional date)
  21. 21. Creation of new CIO• Check income exceeds £5,000pa (until endDecember 2013)• Select constitution type• Draft constitution• Check proposed name is available:• Draft trustee declaration• Draft online application form
  22. 22. Creation of new CIO• Undertake any necessary CRB/DBS checks• Complete other trustee appointmentrequirements (bankruptcy search / references)• Sign constitution & trustee declaration• Submit online application to Commission (no fee)with documents / proof of income / details ofchanges to model used
  23. 23. Result of application• Allow 40 working days to complete• AND time to deal with queries• Incorporated status granted on completion ofregistration• Will result in registered charity number• No suffix/prefix to denote CIO status• No separate register of CIO’s
  24. 24. How to get CIO status for an UA or Trust• No statutory conversion process in CA 2011• Lord Hodgson review did not recommendintroduction of conversion process• But – back door “conversion” possible?• Yes, but not quick, easy or cheap• Potentially easy to get wrong
  25. 25. “Conversion” UA / Trust to CIO• Register a new CIO• Draft agreement to transfer from UA to CIO• All assets• Undertakings• Staff• Liabilities
  26. 26. “Conversion” UA / Trust to CIO• Contact funders for consent• Consider using S.310 CA 210 vesting declarationto transfer property• Landlord’s consent obtained?• Deal with TUPE issues – consultation?• Consider pension crystallisation
  27. 27. “Conversion” UA / Trust to CIO• Complete resolutions of UA & CIO to transfer /accept transfer / dissolve UA• Arrange execution of transfer agreement, anyancillary property documents & any novations ofcontracts / SLAs• Formally complete all documentation
  28. 28. “Conversion” UA / Trust to CIO• Register any land transfers at Land Registry• Apply to HMRC for new VAT no• Apply to HMRC for recognition of CIO as charity• Dissolve UA as per governing document• Apply to Charity Commission to remove UA fromregister of charities• Notify funders / creditors / stakeholders ofconversion
  29. 29. Practical changes on conversion• New registered charity number• Must describe entity as “CIO” not “Charity”• New VAT number• New tax reference number• New GD – will always be constitution• Possibly different accounting treatment
  30. 30. Conversion from other entities• Statutory process but not yet in force for:• Charitable companies – s.228 CA 2011• I&Ps – s.229 CA 2011• Envisaged statutory process for CICs – s.234 CA2011• Enactment and detail of statutory processesexpected 2014
  31. 31. Anticipated conversion processFor charitable companies / I & P’s•Prepare new constitution•Pass resolution to:• Approve constitution• Adopt new constitution•Commission will consult with Companies House/FCA
  32. 32. Anticipated conversion process• Commission makes provisional registration• Companies House / FCA cancel original registration• Cancellation = award CIO status• No transfer agreement needed as true conversion –one continuing body• CC entry will include name of existing company /I & P
  33. 33. Practical changes on conversion• Same registered charity number• For existing companies, loss of Companies Housenumber• HMRC - VAT / tax reference numbers will besame• Update Land Registry details (name etc)• Change name, number & description on allpaperwork / website• Possibly different accounting treatment
  34. 34. Conversion from CIC• S.234 Charities Act 2011• Not yet in force, expected 2014• Statutory process may be created along the linesof requirements for company / I & P societyconversion• If so, likely to be complicated process to convertas CIC’s are not charitable – so don’t necessarilyhave suitable objects & activities
  35. 35. Cardiff Derby NottinghamThank YouAny Questions?
  36. 36. Contact DetailsCatherine NightingaleDD : 029 2039