The Charities Act 2006 introduced the first corporate structure designed specifically for charities - The Charitable Incorporated Organisation or CIO. The CIO is designed as a solution for charities that combines both charitable objectives and a corporate structure, with the intention of easing the administrative burden and increasing accountability and public trust in the sector.

A public consultation is currently underway which will provide the opportunity to clarify the intended structure and to gain feedback on some areas which remain the subject of debate. The consultation is being run by the Charity Commission (‘the Commission’) and the Office of the Third Sector (‘OTS’), the two bodies responsible for the regulation of the sector within England and Wales.

This new structure has been welcomed in principle as the first specifically designed for charities and is a modernisation of over 400 years of charity law. The main advantages are as follows:

• It will simplify the reporting for previously incorporated charities by making the Commission the only body where accounts and other governance will need to be filed. This new streamlined system will no doubt benefit incorporated charities through increased efficiencies and therefore, hopefully, decreased costs.
• Trustees of unincorporated charities will be afforded similar benefits of protection against liability that are currently enjoyed by trustees of incorporated charities.  Undoubtedly, this will be welcomed by trustees of medium-sized unincorporated charities. The additional protection should help to limit their personal risk in matters such as property, commercial contracts and investments. Whether this will be of benefit to smaller unincorporated charities remains to be seen. 

There are, however, areas included within the consultation that do require some thought before CIOs become a reality. Just to touch on three of them:

• There is a proposal that the minimum age of a trustee is 16, thus bringing it line with the new companies’ legislation. But the minimum age for unincorporated charites will remain as 18. Whilst this could encourage social responsibility in the young, will a charity solely run by a board of trustees of this age affect its credibility with potential funders or lenders?
• Within the regulations, there is a prescribed minimum duty of care required by trustees: “the charity trustees of the CIO must not pursue any course of conduct which they know is not in the best interests of the CIO or do not care whether or not it is in the best interests of the CIO.” Whether or not this is sufficient to provide the openness and accountability that is being sought by the regulators is open to debate. There is the option to increase the duty of care within the constitution but how many would seek to do this if the minimum is acceptable, is again, debatable.
• There is still some indecision as to the format of the accounts that will be required by CIOs. The threshold for unincorporated charities to be able to produce accounts on a receipts basis is in the process of being increased to £250,000. This option is of course not open to any incorporated charities and there seems to be uncertainty as to how these options will be applicable to CIOs. In our opinion, ‘accruals’ accounts are the only option for all CIOs if the organisations are to achieve their aim of accountability and to provide the best information to funders and lenders, who are, understandably, interested in how their money is being used.

It is the aim to have registration of CIOs available by mid 2009, but there are so many decisions still to be made following closure of the public consultation, that this may be too ambitious a deadline.

Details of the consultation, including the documents and questions that responses are sought on, can be found on the Office for the Third Sector website at http://www.cabinetoffice.gov.uk/third_sector/Consultations/current_consultations/cio.aspx
The deadline for responses is 10 December 2008 and we recommend that if you are at all interested, you visit the website and respond accordingly.

If you have any queries on CIOs and how they may be of benefit to your charity when they are introduced, please contact your local Menzies partner or Alan Jordan at ajordan@menzies.co.uk.