From the Wales Charity Law and Governance Conference 2014.

1. Opting to incorporate:
Looking at CIO and company
structures
Martyn Robinson
Solicitor, Geldards LLP

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. 1. Why legal structure matters
• Trustee liability
• Legal personality
• Associated matters:
- Certainty for third parties
- Good governance

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 6. Issues to consider upon incorporation
• Whether opting for a CIO or company,
consider:
- Charitable objects
- Administrative provisions
- Governance to date

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. 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. 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. 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. 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. 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. 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. 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. 8. Transferring into CIO / company
• Prepare transfer document
• Pre-transfer issues to consider
• Transfer process
• Post-transfer issues to consider
• Associated issues

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. 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. 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. 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. 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. 8.5 Associated issues
• Potential issues needing specialist advice
- Permanent endowment property
- Funder / bank charges
- Pension deficit

37. Any questions?

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. Thank You

40. Contact details
Martyn Robinson
DD: 029 2038 6532
E: martyn.robinson@geldards.com