An introduction to CIOs for Students’ Unions Thea Longley and Leona Roche June 2013

Overview What is the CIO? Comparison with CLG Becoming a CIO

Charitable Incorporated Organisation What is the CIO? Charitable Incorporated Organisation A new incorporated legal form designed especially for charities

Why was it needed? Legal forms for charities: Unincorporated Trust Unincorporated association Incorporated Charitable company limited by guarantee (CLG) Industrial and Provident Society

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

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

Basic structure of a CIO (1) Two-tier structure: Trustees Members Foundation or Association Model Governed by Constitution

Basic structure of a CIO (2) Name doesn’t need to include CIO Usual rules of charity law apply: Public benefit Restrictions on non-primary purpose trading Restrictions on campaigning Restrictions on trustee benefit

How does the CIO compare with a charitable CLG? Pros Cons Differences Similarities

Pros Single Regulator No company law No reporting to Companies House (annual and event driven) Less risk of fines and offences 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

No Register of Charges – may deter lenders 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

Differences (1) Becoming a Member CLG: need Member to agree CIO: no need for actual agreement, but Members should still be informed in usual way and notified of opt out

Differences(2) Members have fewer rights Rights to amend Constitution, approve transfer/amalgamation with another CIO, dissolve/wind up No automatic rights to: accounts; call meetings; circulate resolutions; appoint proxies; remove the board Need to build these rights into constitution if want members to have them

Differences (3) Electronic communications CLG: Members must give individual consent to receiving electronic communications CIO: Constitution can provide that Members consent by virtue of becoming a Member

Differences (4) 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

Differences (5) 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 e.g. trustee indemnity insurance?)

Minor differences (1) 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. over 50% or 75%) Flexibility to change legal form in future No framework for CIO to convert to a company Companies will be able to convert to CIO (when relevant legislation comes into force)

CIOs can include casting vote Minor differences (2) Chair’s casting vote CIOs can include casting vote No casting vote at members’ meetings for post October 2007 companies Statutory duty of care for trustees of CIO

Still a two tier structure Similarities (1) Still a two tier structure Similar restriction of limited liability for trustees on insolvency Fraudulent trading Wrongful trading

Amending constitution approval of university/college Similarities (2) Amending constitution approval of university/college approval of members CLG: 75% special resolution CIO: 75% (or 100%)

Student enrolment form Similarities (3) Register of Members Student enrolment form Membership of union/opt out Electronic communications Data sharing

Documents you will need Setting up a CIO Documents you will need Charity Commission application form Declaration for trustees Constitution Procedure File application with Charity Commission Wait!

Setting up a CIO - Timetable When will the Charity Commission accept applications? Currently - new charities with income over £5,000 and 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

Converting from an existing unincorporated form (1) 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

Converting from an existing unincorporated form (2) Process Create a new CIO with the Charity Commission Transfer of assets and liabilities etc List assets, liabilities, registrations, contracts (e.g. staff, bank accounts) Decide on mechanism for transfer Obtain third party agreement where required (e.g. funding contracts, grants) Change registrations (e.g. Ofsted, Information Commissioner) Pensions Permanent endowment

Converting from an existing unincorporated form (3) Wind up existing charity Register of mergers?

Conversion of CLG to a CIO Why would you? Not yet available – 2014 No change of legal identity

Thea Longley: t. longley@bwbllp. com Leona Roche: l. roche@bwbllp Thea Longley: t.longley@bwbllp.com Leona Roche: l.roche@bwbllp.com Bates Wells & Braithwaite London LLP 2-6 Cannon Street London EC2V 6YH www.bwbllp.com Tel: 020 7551 7777