The opportunity to register your voluntary arts group as a 'Charitable Incorporated Organisation' (CIO) has been a long time coming, having been delayed numerous times since its inclusion in the Charities Act 2006.
Now that it has finally been introduced, many charities and voluntary groups in Scotland, England and Wales welcome the new structure, as it will help reduce their administrative burdens and provide other benefits - but it may not be suitable for all groups/organisations.
This briefing has been provided by Voluntary Arts. Find out more or access more briefings and guidance from the Voluntary Arts website.
- What is a CIO?
- Pros and Cons of becoming a CIO
- Is CIO a suitable model for your group?
- Registration and reporting for CIOs in England and Wales
- The situation in Scotland
- Further resources
Charitable Incorporated Organisation is the new legal form for non-profit organisations in England and Wales. It has already been introduced in Scotland as the Scottish Charitable Incorporated Organisation (SCIO - below: 'The situation in Scotland').
Registering your group as a CIO gives you the benefits associated with being both a charity and a company, but without having to register with, and report to, two different regulatory bodies.
The charity element of the CIO provides organisations with better access to funding and sponsorship, and exemption from certain taxes. It also makes your organisation more attractive to individual donors.
The company element of the CIO allows the organisation to enter into contracts and conduct business under its own name rather than under the names of its individual trustees - it has 'legal personality'. As a CIO, the organisation also has 'limited liability', which means that, in the event of a financial loss, its members and trustees will not face the same financial liabilities as it would if it were merely a charity.
Previously, the only option for an organisation in England or Wales wishing to benefit from being a charity and a company was to register with both Companies House and the Charity Commission, to become what is known as an 'incorporated charity'. Under the CIO structure, however, an organisation need only to register as a CIO with the Charity Commission (or as an SCIO with OSCR in Scotland) in order to enjoy both sets of benefits.
How has the CIO come about in England and Wales?
The idea of the CIO was first suggested in 2000, when a Charity Commission advisory group was set up to consider reducing the dual regulatory burden of charitable companies having to report to two agencies. The Department of Trade and Industry made a similar recommendation in 2001, and primary legislation to introduce the CIO was finally enacted in the Charities Act 2006.
In 2008, the Charity Commission opened a consultation on draft regulations for the CIO, but was met with difficulties and concerns regarding the structure's framework, which delayed the roll out. While Scotland began registering charities for SCIO status in April 2011, progress in England and Wales has been slower, and only in December 2012 did the Charity Commission start accepting applications for CIO registration.
- The organisation has a 'legal personality' of its own, meaning it can conduct business freely in its own name without the added bureaucratic burden of answering to both the companies and charities regulator
- Members of the CIO are usually personally safeguarded against any financial liabilities incurred by the group, which is not usually the case for unincorporated charities or other unincorporated groups
- There are less onerous reporting requirements for CIOs compared to incorporated charities
- Even very small groups can gain charitable status. The Charity Commission will register groups as CIOs regardless of their income, whereas it will usually only register groups as conventional charities if they have an income of more than £5,000 (be mindful though of the registration timetabling for groups with low income)
- Registering as a CIO incurs fewer costs than registering as both a charity and company, as the Charity Commission does not charge for registration or form filing
- Issues regarding trustees' conflicts of interest are more clear-cut with CIOs. Within a CIO, trustees are only subject to the duties imposed by charity law. Conventional incorporated charities are subject to both charity law and company law, which can sometimes cause confusion
- Both the members and the trustees of CIOs have a legal duty to act in the interests of the group - this is not the case with other legal structures.
- The registration process is currently being staggered, which means some groups may not be able to apply for CIO status (see section below)
- Registering a CIO is a slow process. Whereas it takes a week or less to register a company at Companies House - and it can start operating immediately - the Charity Commission predicts that it will take around 40 days to make a decision about registering a CIO, which cannot operate until a decision has been made
- There is no flexibility for CIOs to create their own governing documents; instead they will have to abide by one of the Charity Commission's model constitutions. However, this does mean that there is less opportunity for groups to make errors or omissions when creating their own governing documents
- Members have fewer rights. Within a CIO, members cannot appoint a proxy to vote on their behalf at general meetings or vote to remove trustees
- Although not as likely to be relevant to voluntary arts groups, CIO status is not suitable for groups wishing to raise funds through medium- to long-term debts ('debentures' or mortgages). In this instance a company limited by guarantee is a better structure choice
- CIOs are obliged to hold an Annual General Meeting (AGM) every year. Though it's not a legal requirement, the Charity Commission is unlikely to register a CIO that omits this requirement from its constitution. It's good practice to hold an AGM once a year anyway, so arguably this isn't really a 'con'
Voluntary groups are not under any obligation to register for CIO status - many will find they are quite happy to continue operating as they are. Generally, CIOs are most suitable for small to medium incorporated groups looking to reduce their administrative burden, or, if they are not yet incorporated, keep it at a manageable level.
However, if you want to raise funds via debentures or a mortgage then it won't be right for you. Groups looking to raise money in this way, and larger, more well-established organisations, will benefit more from the company limited by guarantee structure.
The current legal framework of your group will dictate what factors you must take into account when considering the CIO form (further guidance for all of these organisational forms is available on the Charity Commission website):
- Incorporated charities (company, charity) - there is not yet provision to allow charitable companies to register as a CIO, although it is anticipated to become available from 2014. When it does, it is likely to be very straightforward. Providing you are not an exempt charity (such as most universities, many national museums and galleries, and the governing bodies of voluntary and foundation schools - see Further Resources for more information on exempt charities), the process will simply involve re-registering as a CIO with a new constitution that follows one of the Charity Commission's models
- Unincorporated charities (non-company, charity) - there is no specific conversion process for unincorporated charities, as they don't have the company structure that means that they can simply be re-registered. Converting to a CIO is therefore likely to be slightly more complicated, but can be achieved by first forming a new CIO and then transferring across all of the assets and liabilities of the existing charity
- Unincorporated associations (non-company, noncharity) - like unincorporated charities, there's no specific conversion process for unincorporated associations, but it is possible for such groups to become CIOs by registering a new CIO and then transferring across property and assets from the existing group
- Newly-formed groups - providing your group has an income of more than £5,000, you may apply for CIO status during the initial period of registration with the Charity Commission, but you must choose and complete one of the Commission's model constitutions.
Alternatives to the CIO form
Some groups may wish to consider registering for Community Interest Company (CIC) status, instead. This is a relatively new type of company structure, introduced in the UK in 2005, and is more suited to groups that wish to be specifically identified as a social enterprise and are able to fulfil community needs better than more general charitable needs.
How do I register a CIO?
The Charity Commission will be accepting applications to register as a CIO electronically via its website (see Further Resources section). The website provides comprehensive guidance to support the registration process.
What are the reporting requirements for CIOs?
The CIO framework has been designed to lift some of the administrative weight off organisations, but there will still be some necessary reporting requirements, including:
- accounts and annual reports;
- a register of trustees, giving the name and correspondence address for each trustee, along with the date they became (or ceased to be) a trustee;
- details of any changes to the register of trustees;
- details of any changes to the CIO that need to be reflected on the central register of charities.
What other records does a CIO need to keep?
a register of members, giving the name and address of each member, along with the date they became (or ceased to become) a member. If the group has different classes of member, the register must also indicate which class each belongs to;
proceedings at general meetings;
records of other trustee meetings, including the names of the trustees present, the decisions made and, where appropriate, the reason for the decision.
decisions made by trustees outside of meetings;
records of new appointments.
These records can be kept electronically but you must be able to reproduce them if requested.
In Scotland, the Office of the Scottish Charity Regulator (OSCR) began registering Scottish Charitable Incorporated Organisations (SCIOs) in April 2011 with a staggered registration process much like the one being implemented in England and Wales. One fifth of new Scottish charities registered in 2011 took a CIO structure.
There are currently around 150 registered CIOs in Scotland, with 26 of those focusing on arts, heritage or culture. Two in particular, Edinburgh Youth Gaitherin and the Jubilo Society, illustrate the potential for groups of all sizes to take up CIO status. Edinburgh Youth Gaitherin, which focuses on engaging children through music and dance, has an annual income of around £35,000. Meanwhile, the Jubilo Society, a choir concerned with the appreciation of music as art, has an annual income of just £5,200.
For details of how to register a SCIO in Scotland, visit the OSCR website.
Voluntary Arts Briefings
Available to download for free for individual use from https://www.voluntaryarts.org/Pages/Category/briefings. If you wish to reproduce or disseminate material from the Briefings more widely, please email email@example.com for more details.
- Getting charitable status - an update (September 2010)
- Taking the next step from an informal group to a registered organisation (September 2009)
- Incorporation and recent changes to company law (September 2008)
- Social enterprise (March 2008)
- Community Interest Companies (March 2007)
- Charitable Incorporated Organisation, The Charity Commission
- Guide to Charitable Incorporated Organisations, The Charity Commission
- CIO legislation, The Cabinet Office
- Guide to Scottish Charitable Incorporated Organisations, OSCR
- Scottish Charitable Incorporated Organisations, SCVO
- Charitable Incorporated Organisations: for better or worse?, The Guardian
- Guide to Excepted and Exempt Charities, The Charity Commission
We hope you find this Making Music resource useful. If you have any comments or suggestions about the guidance please contact us. Whilst every effort is made to ensure that the content of this guidance is accurate and up to date, Making Music do not warrant, nor accept any liability or responsibility for the completeness or accuracy of the content, or for any loss which may arise from reliance on the information contained in it.