10 December 2012
From today charity trustees can apply to set up a new form of charity - Charitable Incorporated Organisations (CIOs) - which will make it easier for people to set up and run a charity and protect them from being personally liable if the organisation runs into financial problems, the Minister for Civil Society, Nick Hurd has announced.
Charity trustees are the unpaid volunteers who are in charge of charities. However, in most charities the trustees can be held personally liable for any debts of the charity. In order to protect their trustees, charities have previously had to register as companies, but this is time consuming, bureaucratic and costly for small and medium sized charities. It has meant that in most cases only the larger charities have been able to provide this protection by registering as a company.
The government is determined to make it easier to run a charity which is why it is has changed the rules so that people will be able to apply to set up as a CIO. CIO’s are a new form of charity and mean that the charity itself can enter into contracts and hold property and its trustees will normally have limited or no liability for any of its debts. It will significantly cut administration costs and be a welcome boost to the voluntary sector.
Minister for Civil Society, Nick Hurd said:
We are determined to make it as easy as possible to set up and run a charity. That’s why we have cut the bureaucracy and changed the rules so that charities can set themselves up as Charitable Incorporated Organisations. We expect the administrative saving for the charity sector will be huge.
People will now be able to set up charities without the fear of being personally liable and we hope that many more people will be encouraged to sign up to become a charity trustee.”
The problem of personal liability has been cited as an important factor in why there are so many trustee vacancies. It has meant that people have been put off from signing up for the role and around fifty per cent of charities currently have at least one trustee vacancy. The government and charities expect this new legal structure to encourage many more people to sign up to take on a trusteeship.
Sylvia Knights, Board Member of Suffolk Libraries said:
We are delighted that the government has completed the legislation necessary to implement the Charitable Incorporated Organisation model. This form will be ideal for our members whose fundraising efforts will take them over the £5000 threshold, and will enable all of our brilliant volunteer community library groups to support their libraries with much less administrative red tape.
Claris D’cruz, Charities Consultant, Wrigleys Solicitors LLP, said:
As a new bespoke corporate structure for charities, the CIO is a welcome addition. We have already discussed using the CIO as a legal structure with a number of clients who either are looking to start up a new charity or incorporate an existing one.
Notes to editors
Charitable trusts and associations have no corporate status - so, for example, if they employ staff, the staff are technically employed by the trustees. That can mean that there can be complications when the trustees leave as technically they are still responsible for the staff they have recruited. Holding property can also be more difficult and any legal action against the charity is also taken against the trustees personally - with no protection of limited liability.
Until now, anyone wishing to establish a new charity in England & Wales will normally use one of the following legal forms:
* a charitable trust (a body of trustees governed by a trust deed);
* a charitable association (a membership body governed by a constitution with charitable aims); or a charitable company (established as a company limited by guarantee under the Companies Act 2006 and also registered as a charity under the Charities Act 2011).
The Charity Commission will start taking applications to set up a CIO for brand new charities with incomes of over £5,000 from Monday 10 December.
The earliest date a new CIO can be added to the Register of Charities will be 3 January.
Many larger charities incorporate as companies limited by guarantee to obtain the benefits of limited liability. But charitable companies are dual-registered and regulated, having to register with both the Charity Commission and Companies House, and being regulated under charity law and company law.
CIOs were first promised in the 2002 Cabinet Office Report Private Action, Public Benefit. They were enacted in the Charities Act 2006. Six years later the regulations have been presented to Parliament for their implementation.