The Charitable Incorporated Organisation (CIO) is a proposed new legal form for incorporated charities. It was introduced by the Charities Act 2006, and we were originally promised that it would become available during 2008. In fact the consultation exercise on draft regulations only closed on 10th December 2008, and I have just seen a letter from the Cabinet Office suggesting that the earliest we may expect the CIO is January 2010. (This is in relation to the introduction of the CIO in England and Wales: but a recent newsletter from Scottish charity regulator OSCR states that the Scottish Government does not expect its version of the CIO to be available for use before 2010).
For anyone who hasn’t been following this development, here’s a bit of background.
The Company Law Review recognised that there is a fundamental legal problem with the charitable company (i.e. an organisation that has dual registration both as a company limited by guarantee, and as a registered charity). The directors of a company are primarily accountable to their members (who would be the shareholders in a commercial company). The trustees of a charity have a primary responsibility to their donors and beneficiaries – not to their members. The directors of a charitable company are of course both company directors and charity trustees, so there is potential here for conflict. For example: let’s imagine that someone leaves a fine old building with land to a charity, to be open to the public. The terms of the bequest include a condition that a wild boar must be slaughtered and roasted in the grounds every New Year's Day, with local villagers invited to the feast, as the donor’s family had done for centuries. But the charity’s membership gradually becomes dominated by animal-lovers and vegetarians who pass a resolution banning boar-slaughtering on the charity’s property. What do the trustees do? They cannot comply with both the terms of the bequest (donor’s wishes) and the will of the members. Legally, it’s an almost impossible situation.
Another practical advantage of the CIO is that it will avoid dual reporting requirements. A charitable company has to make returns to both Companies House and the Charity Commission; a CIO will only report to the Commission. This will reduce paperwork. In my line of work, a difficulty often encountered is where a charitable company has made an amendment to its memorandum and articles (constitution) and filed this amendment either with Companies House or the Commission, but not both. This creates a dangerous legal situation, as one of the versions of the mem and arts will be unlawful (it depends on circumstances which one this will be). If the group is working to the unlawful one, or sending it to funders etc, they can get in a terrible mess. The CIO will avoid this possibility.
The CIO will provide full corporate status and limited liability, just like a limited company. Initially, at least, the option will remain of registering a charitable company, as now. The idea is that after five years the CIO will be reviewed and, if it is a success, all remaining charitable companies may be required to convert to CIOs and the charitable company will cease to be an option. We don’t know for sure that this will happen, though – the CIO for some reason may not take off or achieve what was hoped for it. Some lawyers have expressed doubts about the draft regulations that were circulated last year for consultation.
Although the consultation is closed, you can still find it and draft model constitutions on the
website of the Office of the Third Sector.
Charitable Incorporated Organisation
