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Commission admits CIO structure unlikely to find favour with big charities

Finance | Tania Mason | 28 Mar 2011

The latest version of the Charitable Incorporated Organisation drops the provision for organisations that become CIOs to keep a register of mortgages and other charges over their property – a change that the Charity Commission admits may discourage larger charities from adopting the legal structure.

The Charity Commission has today published the first part of its guidance for anyone interested in setting up a Charitable Incorporated Organisation, the new legal structure that was introduced in the Charities Act 2006.

The CIO is primarily an attempt to reduce administration for charitable organisations.  It is an incorporated from of charity which is not a company, and organisations that become CIOs only need to register with the Charity Commission and not Companies House.

It can enter into contracts and its trustees will normally have limited or no liability for its debts.

Several changes have been made to the CIO regulations since the Charity Commission and Cabinet Office consulted on the first draft two years ago.  The Commission says that one of the most significant changes is that there is now no provision for a CIO or the Charity Commission to keep a register of charges – such as mortgages – over CIO property.  This means that a party contracting with a CIO - including another charity in the context of a merger - will not be able to check the status of charges (such as mortgages) over the CIO’s property in the way parties contracting with companies may.  This brings it into line with the Scottish CIO structure, though the Commission admits it may discourage larger charities with significant assets from converting to the legal form.

The regulator expects the CIO will be most suitable for small to medium-sized charities that employ staff or enter into contracts.

The guidance outlines the benefits and rules of CIOs, how to register, what’s involved in running one, and reporting requirements.  It also sets out how a CIO is different from an unincorporated charity.

More guidance will be added over the next few months as the implementation of the form gets closer. The regulations which will enable CIOs to be introduced have not yet been debated by Parliament and the Office for Civil Society is still to publish a timetable for implementation.

Model constitutions

Alongside the guidance, the regulator is also publishing two model constitutions for creating a CIO to allow charities, their advisers and other to decide if the structure is right for them.

The two model constitutions are a foundation model, for charities whose only voting members will be the charity trustees, and the association model, for organisations that have voting members.

The Scottish charity regulator, OSCR, will register Scottish CIOs from 1 April.

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