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/Acco unting_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. 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 Setting up a CIO - Timetable

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_n eed_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