The reporting requirements for charities can be burdensome, especially if the charity is incorporated as it must adhere to the requirements and reporting standards of both company and charity law. However, operating as an unincorporated charity is not without risk, since such a charity is not a separate legal entity. This leaves trustees with possible liabilities should things go wrong – something which can deter people from becoming trustees. So is it possible to have the best of both worlds? Well now, at long last, there could be an answer. The Charities Act 2006 created a new legal structure, the Charitable Incorporated Organisation (“CIO”) that seeks to combine benefits of both incorporation and being unincorporated.

Having been talked about for years, and despite being initially scheduled for 2009, the launch of the CIO has frequently been delayed. These delays have caused much frustration amongst the charity sector – as noted at the Charity Commission’s public meeting in May 2012 and by Lord Hodgson in his review of the Charities Act 2006 (which was published in July 2012).

In their response to Lord Hodgson’s review, the Office for Civil Society set out their intention to lay the necessary legislation before Parliament with a view to CIOs being available before the end of 2012. And this week, the Charity Commission started to accept the first applications with a view to registration from 2 January 2013.

So what is a CIO? It is a new a new legal structure combining the benefits of both incorporation and being unincorporated. Charitable companies and unincorporated charities will have the option to convert to being a CIO. There are several key features and benefits from being a CIO:

• Limited liability – members of a CIO will have no or limited liability for debts of the CIO;
• One law – CIOs will be governed by charity law only and will not also need to comply with company law;
• One regulator – CIOs will be regulated by the Charity Commission only, with no requirement to also deal with Companies House;
• One entity – as a separate legal entity, a CIO will be able to enter into contracts and hold property in its own name;
• One set of reporting requirements – reporting requirements will be those as for charities, without the need to also review company reporting requirements, with the option to prepare receipts and payments accounts available for smaller CIOs.

However, the structure of a CIO will not be appropriate for all organisations. For example, there is no requirement for either the Charity Commission or the CIO itself to maintain a Register of Charges. Therefore, the CIO structure may not be appropriate for any charities looking to borrow, as banks and other funders may be more reluctant to lend.

Another point to consider is that whilst there is a mechanism for incorporated charities to convert to a CIO, existing unincorporated charities must register a new CIO with the Charity Commission, and then transfer its assets and undertakings from the unincorporated charity to the new CIO. This process is very similar to that followed by charities wishing to incorporate, but it may be put off some smaller charities, since the organisation will be operating under a new name and registration number, which will need to be notified to the everyone dealing with the organisation, not least its bankers, funders, suppliers, and HMRC.

So are CIOs worth the wait? Well for new charities looking to register, then undoubtedly it is a structure that should be considered. For existing charities, the administration in registering a new entity or undergoing the transformation process may put some organisations off – I have worked with unincorporated charities who have decided against incorporation due to the administration involved in changing bank accounts, contracts, notifying suppliers, funders, regulatory bodies etc (and in fact, remaining unincorporated may focus trustees’ minds even more on ensuring they are fully compliant and risk aware). However, there are benefits and, in a world where compliance seems to be forever increasing and organisations looking to reduce costs where possible, it is a structure that merits serious consideration.

The Charity Commission expect CIOs to be popular, with applications being phased over several years. Talk amongst sector professionals and advisors suggests the uptake may not be quite so large –at least initially, many perhaps waiting to see the impact of those keen to try the new type of organisation before fully committing themselves. Having waited so long, there will be interest in the sector and many organisations are likely to take this approach, given the benefits. After all, good things come to those who wait.