CHARITABLE INCORPORATED ORGANISATIONS

Transcription

1 CHARITABLE INCORPORATED ORGANISATIONS This sheet gives some basic information about the charitable incorporated organisation which is due to begin to become available to charities from January CHARITABLE LIMITED COMPANIES There are three The Charities Act 2006 Schedule 7 (now Charities Act 2011, Part 11) created an alternative to the company limited by guarantee as the way in which charities become incorporated. It is called the CHARITABLE INCORPORATED ORGANISATION or CIO. This is a limited liability organisation registered with and accountable only to the Charity Commission (but NOT to Companies House). Like a limited company or a community benefit society, it is a separate legal identity from its members and therefore can, in its own right, own property, employ people and enter into contracts. New charities wishing limited liability and existing charities that wish to have limited liability can choose to adopt this structure, rather than a company limited by guarantee (CLG). Mergers and reconstructions involving CIOs will also be easier. New charities wishing to register as CIOs and existing unincorporated charities wishing to incorporate can now register as CIOs. The final tranche will be existing charitable companies that want to convert to CIOs and thgis is expected to become available during the early part of The CIO has a specially designed constitution in reasonably plain English. There are two models one for membership (Association) organisations and another for non-membership trustee-only (Foundation) organisations. The Constitutions will contain provisions currently in Charity Commission models that: prevent disposal of assets to members place duties of care, transparency and good faith on trustees place duties on members and trustees to act in best interests of the CIO, its beneficiaries and service users. 1

2 Members can elect to limit their liabilities to a fixed sum or to have no liability at all. There is an option for trustees not to be members of a CIO but they cannot take any personal benefit (apart from legitimate expenses) without first disclosing all personal interests in the benefit both their own and interests of connected persons. CIOs will be able to amend their constitutions, merge, dissolve or transfer assets to each other in much the same ways as existing charities can. The CIO only needs to register with the Charity Commission and present annual reports/accounts and returns to it. The Commission will be the sole regulatory body and will not charge fees for registration or filing, at least for the time being. However the 2006 Act gives the Commission power fine charities up to 2500 for late delivery of accounts and returns. This power will only be used if the voluntary naming and shaming scheme currently in place is not successful in encouraging prompt filing. POSSIBLE DISADVANTAGES OF THE CIO: Conversion Process: Unincorporated charities converting to CIOs will use a similar procedure to incorporation as companies, except they will make the application and submit their adopted constitution directly to the Commission. The CIO will have a new charity number and the unincorporated charity will have to dissolve and transfer its assets and liabilities to the CIO. As yet there is no information on the actual process by which existing CLGs with charity numbers or Community Benefit Societies will convert to CIOs, although the intention seems to be that no new organisation will be created: the CLG or CBS will simply become a CIO. The pros and cons of whether an incorporated charity should stay as a limited company or convert to a CIO are shown on pages 8 and 9. Lack of Flexibility in the Constitution: the Commission have indicated that they expect organisations to adopt the models as written and will not welcome substantial amendments to the standard clauses. In particular, this means that, for example, a written resolution of a CIO s members can only be passed when ALL members have signed it see page 8 box 8. Fewer statutory rights for members: certain rights available to company members under the Companies Act are not available to CIO members. These include: 1. Right to a proxy vote 2. Right to demand a poll (count of votes on a show of hands) at a general meeting 3. Right to remove trustees by a resolution passed in a general meeting 4. Right to pass written resolutions instead of calling a meeting to pass them. However the Charity Commission s model constitutions provide for each of these. Pension providers: Unincorporated organisations who have staff on defined benefit or final salary pension schemes will need to consult with the Pension provider concerning any deficit in the fund and resulting liabilities under the 2005 Pensions Regulations. For more information go to: 2

3 on_schemes_questions_and_answers.pdf Credibility: Charity specialist lawyers and accountants have raised the issue of whether a very new type of corporate structure will be readily understood and accepted by traditional (and rather conservative) financial institutions such as banks and insurance companies. Hidden costs: Although the Charity Commission do not propose to charge for incorporation or conversion, organisations will have to plan for the cost of, for example, new stationery and website etc details, company de-registration, transfers of property, novation (transfer) of third-party contracts, increased accountancy fees and insurance premiums. The Commission s latest guidance is at: The draft model constitutions are at: (Foundation model where only the Trustees are members) (Association model where the CIO has a wider membership than its board of trustees) OTHER FACTORS TO CONSIDER 1. CIOs must call AGMs each year whereas private limited companies are no longer required to do so 2. Delays in implementing CIO conversion for existing charities see page 5 below 3. No minimum income threshold for registering CIOs (other charities must have at least 5000 income) 4. Only charity law duties apply to trustees not company law duties 5. The Chairperson has an automatic casting vote at CIO general meetings, whereas under company law, s/he only has this if s/he is also a member of the company and the Articles provide for it 6. Members, as well as trustees, have a legal duty to act in the best interests of the CIO 7. CIO members and trustees details are not open to public inspection (apart from names and service addresses) 8. There is no requirement for a CIO to keep a register of mortgages and legal charges 9. Charity accounting and reporting rules apply rather than company accounting and reporting rules see page 5 below. 3

4 10. When the CIO becomes available to new charities and then existing charities, the company limited by guarantee will still be an option for a charity to register as an incorporated limited liability body see pages 8 and 9 below. SETTING UP A CIO 1. Organisations must choose one of Commission s free model constitutions a. Foundation model where only the voting members are the trustees b. Association model where there is to be a wider voting membership See pages 6-7 for details of the constitution s contents 3. Once the constitution has been adopted, the organisation must follow the Charity Commission s normal on-line registration procedure 4. The Charity Commission may refuse to register an organisation as a CIO if: o its registered office is not in England or Wales o its objects are not exclusively charitable o its activities are not exclusively charitable o its activities do not demonstrate sufficient public benefit or there is excessive private benefit e.g. to trustees or people connected to the trustees CONVERTING TO A CIO 1. Unincorporated charities will be able to convert to CIOs from March The procedure will be similar to incorporating as a company except the application to register is made on-line to the Charity Commission once the constitution has been adopted 3. The CIO will have a new charity number 4. An existing unincorporated charity must dissolve and transfer assets and liabilities to the CIO 5. Charitable companies are due to be able to convert to CIOs from No date has yet been set for Community Benefit Societies or CICs to convert to CIOs. 7. The process is designed so that no new organisation is created: the company/cbs simply becomes a CIO and so a company s charity number does not change 8. See page 6 for the detailed implementation timetable. 4

5 ACCOUNTING AND REPORTING RULES All CIOs must submit accounts regardless of income but no independent examination will be required if the annual income less than CIOs with annual incomes of less than 250,000 can submit receipts and payments accounts CIOs with annual incomes of 250,000 or more must submit accruals accounts CIOs with annual incomes under 500,000 can submit independently examined accounts All CIOs must submit annual reports and annual returns to the Charity Commission RECORD KEEPING All CIOs must keep registers of members and trustees Members details are their names and addresses, and dates of joining and leaving Trustee details are name, former name, service address, date of birth, nationality and business occupation Corporate trustee details are name and registered office address DISSOLVING CIOs The Insolvency Act 1986 and the Company Directors Disqualification Act 1986 apply to CIOs in the same way as to companies, so the trustees of an insolvent CIO can be made liable for its debts on winding up if they have been guilty of wrongful or fraudulent trading Solvent CIOs can be wound up voluntarily by an application to the Charity Commission using a similar procedure to winding up a solvent company LIABILITIES OF A CIO s TRUSTEES Its trustees can be made liable for a CIO s debts or for claims against it if they: 5

6 have been negligent or dishonest in the way they have managed the CIO or dealt with its assets or property have acted while disqualified under Charities Act 2011 are in breach of a statutory duty as charity trustees have given a personal guarantee to a creditor of the CIO (e.g. a landlord) IMPLEMENTATION TIMETABLE From 10 th December 2012 organisations newly registering as charities with annual incomes of 5000 or more can apply to register as CIOs. (Those with incomes of less than 5000 can apply from January 2014) Existing unincorporated charities can apply to convert to CIOs as follows: Those with incomes of 250,000or over from late March 2013 Those with incomes of 100, ,000 from May 2013 Those with incomes of 25, ,000k from July 2013 Those with incomes of 5,000-25,000 from October 2013 From January 2014 all unincorporated charities can apply Existing charities registered as companies limited by guarantee can (possibly) apply to register from No date has been fixed for when Community Benefit Societies or Community Interest Companies can apply to convert to CIOs. CONTENTS OF A CIO s CONSTITUTION Name Location of principal office as being in England or Wales Objects Powers Application of income and property Benefits and payments to trustees and connected persons Conflicts of interest and conflicts of loyalty Liability to contribute to assets on winding up Membership admission, rights and duties (association model only) Members decisions General meetings calling, notices procedure 6

7 Charity trustees appointment, retirement, removal, information for new Trustees Decision-making by Trustees and delegation Trustees meetings calling, chairing, procedures Validity of trustees decisions Execution of documents Use of electronic communication Keeping Registers Minutes Accounting and reporting obligations Rules Disputes Amendment of constitution Voluntary winding up and dissolution Interpretation 7

8 LIMITED COMPANY OR CIO? 1. You need to get set up quickly and can t wait for the CIO 2. You want to have a choice of models and wording of your governing document e.g. Charity Commission, Charity Law Association, other solicitors model BECOME OR REMAIN A LIMITED COMPANY IF 3. You do not wish to be obliged to call an AGM each year but want to provide members with a statutory right to call a general meeting at any time 4. You wish to give members a statutory right to vote by proxy 5. You wish to give members a statutory right to call for a count of votes (poll) at general meetings 6. You wish to give members a statutory right to remove directors/trustees from office at a general meeting (unless the CIO rules enable you to include this right or remove it later) 7. You wish amendments to the Articles to take effect at the end of the general meeting where they were passed (or if to objects) on registration at Companies House rather than on acceptance by the Charity Commission 8. You wish to have a statutory right to pass written resolutions as a company (e.g to do ordinary business (51% majority vote) or to amend the Articles by special resolution on a 75% majority). CIO written resolutions need 100% of members signatures. 9. You will need to mortgage or place a legal charge over the property or assets of the charity and funders require that these will have to be registered at Companies House 10, You are already incorporated and have staff in defined benefit or final salary pension scheme which is in deficit as liability for the deficit may transfer from the pension provider to you as the employer on conversion to a CIO 8

9 LIMITED COMPANY OR CIO? 1. The organisation is to be a newly registered charity with an income of less than Unlike other structures, there is no minimum income requirement for registering a CIO 2. You wish to have the option of members having no liability to contribute to the assets of the CIO on insolvency BECOME OR CONVERT TO A CIO IF 3. You wish the Trustees to be subject only to charity law duties and not the 2006 Companies Act duties (e.g. regarding conflicts of interest and acting in the best interests of the company) as well 4. You wish to place duties of acting in good faith and in the interests of the charity on the members as well as the trustees 5. You want to be obliged to hold an AGM each year 6. You wish the Chair to have as second or casting vote at general meetings whether or not s/he is a member of the CIO 7. You don t want members details to be open to public inspection however Trustees names and service addresses will be open to public inspection in the same way as for companies. WHERE TO GET MORE INFORMATION Sandy Adirondack has produced a detailed guide the CIO her website at: This website updates the Voluntary Sector Legal Handbook available from Sandy or from the Directory of Social Change All phone enquiries: London office Liverpool office 24 Stephenson Way Federation House London NW1 2DP Hope Street, Liverpool L1 9BW Tel: Tel: Fax: Fax: Website: 9

10 INFORMATION SHEETS available from VAS: Accessible Organisations Acquiring and Managing Premises Action Planning Business Planning Campaigning and Lobbying Charitable Incorporated Organisations Closing Down Community Interest Companies Constitutions Contracts and Procurement Data Protection Disciplinary and Grievance Procedures Due Diligence Employing a Worker Equality and Diversity Guarantee Companies Handling Redundancies Health and Safety Incorporated Charities Insuring your Organisation Involving Volunteers Legal Structures Management Committees Monitoring and Evaluation Parents and Carers at Work Quality Assurance Safeguarding Vulnerable People Sickness Absence Management Starting Up Trading and Fund-raising The Circle 33 Rockingham Lane Sheffield S1 4FW Tel: Fax: info@vas.org.uk Website: Registered charity no: Company limited by guarantee no: