Some of the implications
for an existing Charitable Trust, as BSS used to be,
that have now registered as a CIO.
Information for BSS Members
the Friday of the Conference at 9am the BSS 2014 AGM was held. Ordinarily
this is simply the mechanism by which the next year's serving trustees are
elected. This year however a vote was needed on whether or not to change the
Society's legal status.
NB: Only BSS Members in good standing could cast their vote at an AGM.
This page provided Guidance to those BSS
All information was (and still is) provided here in good faith and only in summary form for the information of visitors to this page. See our disclaimer at the bottom.
1. The Charitable Incorporated Organisation (CIO) was a
relatively new form of charity which
had only been available since January 1st 2013 and then not applicable to
charities of the size of BSS until mid 2013.
2. The Trustees of a Charitable Trust, such as BSS was before, remain subject to general charity law and must always act with appropriate care and must keep within the charitable objects and powers. Trustees/Directors of a charitable company on the other hand are additionally subject to the Companies Acts and various company law requirements.
3. The chief attraction of registering as a CIO is that it provides protection for the individual Trustees/Directors from personal financial liability in some circumstances where Trustees of an unincorporated charitable trust would not be protected. Another benefit of the CIO is that it provides the protection of limited liability without the need to register with Companies House and the subsequent reporting and company law requirements.
4. The main trigger for becoming a CIO is to give the charity the benefit of limited liability through the CIO structure. The charity would benefit from being a separate legal entity where its assets are at stake and not those of the Trustees/Directors individually should it become bankrupt. The Trustees/Directors of a charitable company are responsible for ensuring that the charity meets with the requirements of both Companies House and the Charity Commission at all times. The CIO is designed for small to medium charities where contracts are entered into and where staff might be employed.
5. There are two sets of potential liabilities that Trustees of a Charitable Trust like BSS currently face. The first is in respect of the duties owed to the charity to act with the necessary care and not to act outside the objects and powers of the charity. If Trustees cause a loss to the charity, either through a lack of proper care or by spending money for purposes outside the charity’s objects, they can be called upon to refund the money out of their own resources. This applies as much to Directors of a CIO as it does to the Trustees of an unincorporated charity.
The second has to do with potential claims by third parties. Examples of these would be: claims for damages for personal injuries; claims for compensation for unfair dismissal by an employee; claims for breach of contract by a supplier of goods and services; claims for damages in respect of “wrong” counselling or other advice. It is in respect of these potential claims that protection is afforded to the Trustees/Directors of a CIO.
6. In the case of a CIO, a separate legal entity exists. This means that any debts owed by the company are owed by the CIO and not by the Trustees/Directors personally; assuming always that the Trustees have not given personal guarantees or entered into contracts in a personal capacity. In the case of a Charitable Trust such as that currently governing BSS, there is no separate corporate entity, and therefore the debts and potential liabilities of the Charity, which cannot be met out of its own resources, can become the liability of the Trustees personally.
7. It should be added that in the case of a CIO, if the Trustees/Directors continue to operate whilst knowing that the company is insolvent, they could then become personally liable for debts owed by the company.
8. A CIO exists as a separate legal entity, legal title to buildings, stocks and shares etc., can be held in the name of the CIO and not in the names of the Trustees/Directors for the time being. This saves legal costs and fees associated with a change of legal title of land/buildings when Trustees/Directors change. But it should be noted that it is entirely possible to incorporate a body of Trustees of a Charitable Trust so that legal title can be held in a corporate name. This is called a Trust Corporation. However, this does not give the Trustees the protection of limited liability.
9. The present Charitable Trust structure of BSS had the benefit of simplicity. Trust Deeds usually leave the Trustees to decide how often they meet and how they convene their meetings etc. They ought to keep minutes of their meetings, although this is not a formal legal requirement.
CIOs on the other hand face stricter requirements under the Companies Acts. Unless the charitable company’s Articles of Association provides the provision to dispense with holding an AGM, one will have to be held at the right time each year with proper notice given of the time and place and the business to be transacted. At the moment unless the BSS Trustees decide otherwise the AGM is there solely to elect the persons who will serve as Trustees for the next year. Annual returns and notices of changes of Trustees/Directors or Secretary or the Registered Office have to be notified to Companies House within certain time limits. Accounts must be sent to Companies House within strict time limits. Late filing of the annual accounts brings an immediate fine of £150, which increases if the delay is more than one month. There are also specific requirements regarding details that must be present on all Company notepaper.
10. CIOs must maintain a Register of Trustees which is open to anyone to view, and a Register of Members which is not open to anyone to view. In the case of a Charitable Trust, an annual return and accounts must be submitted to the Charity Commission each year. An AGM must also be held every year. The Charities Act 2011 does not allow Trustees of a charitable trust (like BSS is at the moment) to dispense with these, as is the case with a charitable company).
11. The requirements are broadly similar for charitable trusts and CIOs in that the Charities Accounting Regulations have placed equal expectations to keep accounting records and to produce annual accounts to certain standards on both unincorporated charities and CIOs. It is understood that full accrual accounting will generally be required after conversion to a CIO. This will undoubtedly limit the number of members who could be readily persuaded to offer themselves as Treasurer.
12. For charities and for CIOs with turnover and fixed assets under £500,000, an Independent Examination is required; as now.
13. A significant cost is involved in setting up a CIO, the more so if external assistance is being used for this as was the case with BSS.
14. The Charity Commission now takes the view that a CIO is a successor body to the original Charitable Trust. If a gift is made to a dissolved unincorporated charity it would take effect as a gift for the purposes of the association. A statement showing that the new body is succeeding the original charity and that the charitable objects are the same may be included within the Memorandum and Articles, or the Constitution (in the case of a CIO). In addition, an incorporating charity can be listed on the Charity Commission’s Register of Mergers as a charity having transferred its assets to another (i.e. the new incorporated charity).
15. Following incorporation, all contracts and assets had to be transferred to the new entity. Liabilities may not normally be transferred into the new organisation.
16. Read comments here in the media about the introduction of CIOs. ►Media interest in CIOs (Guardian) ►Media Interest in CIOs (Charity Times)
17. Other information ►Here from Deloittes
This summary is provided in good faith as a short outline intended as information for members of BSS and other interested parties. It only covers CIOs and their differences with established Charitable Trusts. It is not an exhaustive summary of the legal status of CIOs and it certainly does not represent legal opinion.
Advice should be sought before reliance is placed on the content of this page. Information published with permission E.&O.E.
Please advise the webmaster if anything here is incorrect or needs better explanation.