Charitable Incorporated Organisations Alice Faure Walker February 2013

1. Charitable Incorporated Organisations Alice Faure Walker February 2013

2. Background • Pros and cons • Setting up a CIO • Running a CIO • Converting to a CIO • Case studies

3. History/background to the CIO What is the CIO? • A new incorporated legal form designed especially for charities

4. Why was it needed? Legal forms for charities • Unincorporated • Trust • Unincorporated association • Incorporated • Charitable company limited by guarantee • Industrial and Provident Society

5. Why an incorporated legal form? • Legal identity • Limited liability for trustees BUT • More administration (and regulation)

6. Problems with the charitable company limited by guarantee • Dual regulation • Companies House • Charity Commission • Company law • Unsuitable for charities? • Assumes that members have a financial interest

7. How could this be improved? • Private action public benefit, Cabinet Office Strategy Unit 2001/2002 • A new incorporated legal form just for charities, with a single regulator • Draft Charities Bill 2004 • Charities Act 2006 • Relevant provisions and regulations in force 2 January 2013

8. Compare with a charitable CLG • Pros • Cons • Differences

9. Compare with a charitable CLG • Pros • Single Regulator • No company law • No reporting to Companies House (annual and event driven) • Less risk of fines and offences • More suitable regime? • Tailored especially for charities • Receipts and payments accounts for smaller charities (with a statement about outstanding guarantees and charged debts) • Lower costs • Currently no registration or filing fees • No income threshold for registration • From January 2014 CIOs may register even if their annual income is below £5,000

10. Compare with a charitable CLG • Cons • New and untested • Gaps in the law • No Register of Charges – may deter lenders • Not formed until registration • Changes to constitution not made until registered with Commission • Dissolved if ceases to be a charity - within three months • Not available for exempt charities (eg academies)

11. Compare with a charitable CLG • Differences • Members have fewer rights • Rights to amend, approve transfer/amalgamation with another CIO, dissolve/wind up • No automatic rights to: accounts; call meetings; circulate resolutions; appoint proxies; remove the board • Members’ duty • Members of a CIO have an express duty to exercise their powers in a way which they believe in good faith would be most likely to further the purposes of the CIO • Privacy • Broadly speaking, only the members and trustees may inspect the register of members of a CIO

12. Compare with a charitable CLG • Differences • Electronic communications • Company members must give express individual consent to email communications: a CIO’s constitution may provide that supplying an email address to a CIO acts as deemed consent • Conflicts of interest • CIO regime is more restrictive • Charity trustees may not benefit personally unless made prior disclosure to all trustees • Charity trustees may not take part in a trustees’ or members’ decision if they would benefit (what if they would all benefit eg membership fees or trustee indemnity insurance?)

13. Compare with a charitable CLG • Minor differences • Majorities for written resolutions • CIO rules require unanimity: company law requires a similar level of majority to a resolution passed at a meeting (e.g. 50% or 75%) • Flexibility to change legal form in future • Companies will be able to convert to CIO (when relevant legislation comes into force): no framework for CIO to convert to a company • Chair’s casting vote • No casting vote at members’ meetings for post October 2007 companies: CIOs can include a casting vote

14. Compare with a charitable CLG • More minor differences • Consensus voting • CIO regime allows the constitution to provide for this at trustees’ and members’ meetings • Statutory duty of care for trustees of CIO • Still a two tier structure!

15. Charity law • The usual rules of charity law apply to a CIO e.g: • Public benefit • Restrictions on non-primary purpose trading • Restrictions on campaigning • Restrictions on trustee benefit • Guidance on accounting requirements is available at www.charity-commission.gov.uk/Charity_requirements_guidance/Accounting_and_reporting

16. Setting up a CIO • Documents you will need • Charity Commission application form • Declaration for trustees • Constitution

17. Setting up a CIO – constitution • CIO constitution • Charity Commission model • No power to remove trustees in foundation model • Conflict of interest provisions may cause problems? • Bespoke constitution • Foundation vs Association model • The role of the membership

18. Setting up a CIO – constitution Key elements: • Name • Charity Commission may refuse to register on account of name • Principal office • Physical place • Objects • Powers • A CIO may do anything which is calculated to further its purposes or is conducive or incidental to doing so. May wish to include express powers.

19. Setting up a CIO – constitution Key elements: • Not for profit • Trustee benefit - Restrictions • Members’ guarantee - No guarantee or nominal amount

20. Setting up a CIO – constitution Key elements: • Members - Appointment • Who will they be? - Removal - Taking decisions • Meetings • Decisions outside a meeting - Electronic communications

21. Setting up a CIO – constitution • Trustees • Eligibility • Appointment • How are they appointed? • Term of office • Removal • Decision-making • Registers and record keeping • Amendment • Dissolution

22. Setting up a CIO - Timetable • When will the Charity Commission accept applications? • Currently - new charities with income over £5,000 • From 1 March – existing unincorporated charities with income over £250,000 • From 1 May – existing unincorporated charities with income over £100,000 • From 1 July – existing unincorporated charities with income over £25,000 • From 1 October – existing unincorporated charities with income over £5,000 • From 1 January 2014 – new charities and existing unincorporated charities regardless of income level

23. Setting up a CIO • Procedure • File application with Charity Commission • Wait!

24. Running a CIO • Meetings • Trustees’ meetings • Who can call a meeting? • Notice period • How is notice given?

25. Running a CIO • Trustees’ meetings • Procedure • Chair • Quorum • Voting • Remote attendance • Conflicts of interest • Disclosure • Not vote?

26. Running a CIO • Trustees’ meetings • Decisions outside meetings • Written • Email • Consensus decision-making? • Delegation

27. Running a CIO • Member’s meetings • Which decisions are made by members? • Appointment/removal of trustees? • Amendment of constitution • Transfer to/amalgamation with another CIO • Dissolution and winding up

28. Running a CIO • Members’ meetings • Who calls? • Notice period • Use of email/websites to give notice • Procedure • Quorum • Chair • Voting • Conflicts of interest • Postal or email voting • Proxies

29. Running a CIO • Meetings • Decisions outside meetings • Majority required? • Some notice periods and majorities prescribed by the CIO legislation • eg amendments to constitution require 14 days notice and 75% majority

30. Running a CIO • Registers • Trustees • Required • Trustee interests • Good practice • Members • Required • Who can inspect?

31. Running a CIO • Records • Minutes • Publicity requirements • Name and status to be disclosed on business documents, emails, website etc • Offence for failure to comply • Charity Commission • Accounts within 10 months of year end • Details of changes in particulars which appear on the register – file within 28 days • Constitutional changes – file within 15 days • Dissolution

32. Converting from an existing unincorporated form Reminder of the reasons for incorporation • Pros • Limited liability • Note the limited scope of trustee indemnity insurance (see “Duties of Charity Trustees” available at www.bwbllp.com/knowledge/2012/08/09/resources-for-trustees) • Legal identity • Succession planning • Cons • Upheaval • Greater administrative burden • Privacy

33. Converting from an existing unincorporated form Process • Create a new legal vehicle • Registration with the Charity Commission • Transfer of assets and liabilities etc • List assets, liabilities, registrations, contracts (eg staff, bank accounts) • Decide on mechanism for transfer • Transfer document • Obtain third party agreement where required (eg funding con tracts, grants) • Change registrations (eg Ofsted, Information Commissioner) • Pensions • Permanent endowment

34. Converting from an existing unincorporated form Wind up existing charity • Register of mergers?

35. Conversion of company limited by guarantee to a CIO • Why would you? • Not yet available – 2014 • No change of legal identity

36. Case studies

37. More Information • Charity Commission www.charity_commission.gov.uk/Start_up_a_charity/Do_I_need_to_register/CIOs • BWB www.bwbllp.com

38. Contact Alice Faure Walker a.faurewalker@bwbllp.com Bates Wells & Braithwaite London LLP 2-6 Cannon Street London EC2V 6YH www.bwbllp.com Tel: 020 7551 7777