CIOs – Should you make the move?

The emergence of a new type of structure for charities, the Charitable Incorporated Organisation (CIO), has added an extra layer of choice for trustees and charity managers.  Some charities are already incorporated as companies; others are not incorporated at all, with the implications for individual trustees that this entails.

The CIO structure has been hailed as the ideal solution for many charitable organisations, but given that the process of becoming a CIO is complex and time-consuming, should your organisation be considering this route?

There are undoubted advantages to becoming a CIO.  For unincorporated charities, property and contracts are held individually by trustees on behalf of the charity, so if things go wrong, those trustees are ultimately liable.  Trustees of an unincorporated charity theoretically have unlimited personal liability; trustee indemnity insurance can be taken out, but even this may not be sufficient for litigation.

Incorporation limits that liability (provided the decisions made by trustees are reasonable and lawful), meaning that if the charity incurs debts it cannot ultimately pay, trustees are not personally liable.

Until now, incorporation meant being both a charity and a company limited by guarantee.  That means being regulated at the same time by both the Charity Commission and Companies House.  A CIO offers a similar limited liability, but with a simplified regulatory regime, with the Charity Commission the single regulator.  Another advantage is that this brings with it simplified accounting requirements.

For charities which employ any number of people, or which hold significant property or assets (or which may do in the future), incorporation is an important step.  So is becoming a CIO a no-brainer for existing and new charities?

For smaller new charities that wish to obtain the benefits of charitable status at the earliest opportunity, it is advantageous to go down the CIO route, as there is no requirement to wait until the charity’s annual income exceeds £5,000 before registration is permitted.  For larger new charities and existing charities the answer is not totally clear-cut. 

There are two major drawbacks to taking this route.  The first is that the CIO structure is still not widely understood, especially in the banking world.  This situation is sure to change over time, but charities should certainly talk to their banks and other partners before taking the plunge.

For existing incorporated charities, the Charity Commission offers a CIO conversion route which simplifies the process a little.  However, although becoming a CIO will streamline regulatory and accounting requirements, an incorporated charity already has the limited liability inherent in a CIO, so it may be easier to remain as you are.

For unincorporated charities, the position is more clear-cut.  If you are considering incorporating anyway (perhaps because you are growing and taking on your first employees, or because you need to rent premises or take on a large contractual obligation), then moving straight to the CIO solution is a more obvious route to take.

Unincorporated charities are often better remaining as they are until they reach the point of needing the protection of limited liability.

Some Community Interest Companies (CICs) have also been exploring the benefits of becoming a CIO.  This will very much depend on the nature and purpose of the CIC.  If they are primarily charitable, and are prepared to be regulated as a charity, then the CIO route might be relevant.  But CICs already have the limited liability protection, and may not want to subject themselves to the legal restrictions which all charities must operate under.

Becoming a CIO is not a panacea, but it is a very useful addition to the choice of structures available to charitable organisations.  As always, taking professional advice before making any decision is vital.