Making the move to become a CIO

Why would you convert your unincorporated charitable trust with a voting membership to a CIO (Charitable Incorporated Organisation)? And would you dare do it without involving lawyers (except for the last bit), thus saving money? The Fry Art Gallery in Saffron Walden, Essex – a small regional art gallery with 10,000 visitors a year and a growing reputation for punching above its weight – did just that this year, and survived!

Entirely run by volunteers, the Fry specialises in the Bardfield group of painters, such as Edward Bawden and Eric Ravilious, who lived in the area in the early 1930s. It is regularly described on Trip Advisor as “a real gem”. Membership stands at 1,200. Martin Gruselle, its honorary treasurer, says the catalyst for the change was the gallery’s success in purchasing the property, which they previously leased. He describes the process, including the decision to change to a CIO and how they went about it using Charity Commission.

Why convert to a CIO?

Because:

• you want to register the title to your charity’s property in its own name not in the names of trustees
• you need to employ staff
• you are concerned about the level of financial risk your trustees face

 Where to start?

The trustees should first consider and approve the idea of converting to a CIO – appointing one of their number to take on the task. Agree that all trustees will be appointed trustees of the CIO. Read the Constitution, to ensure it:

• allows the assets of your Trust to be transferred to the CIO; and
• will permit the Trust to continue in existence as a ‘Shell’ charity (rather than it being dissolved) – whereupon the Charity Commission will ‘link’ the existing charity to the CIO. This will mean that should any payment (for example a bequest under a Will) be due to the Trust at any time in the future the executors can make the payment to the CIO instead.

It is likely that the Constitution does not provide for this eventuality so an amendment to it should be a first step – or be made the first part of the Special Resolution to wind up the Trust. Notify the members of the intention to apply to the Charity Commission to convert – spelling out the reasons for doing so. Be sure the latest accounts of the Trust have been submitted to the Charity Commission.

First steps – set up the CIO

Follow the relevant parts of the very useful guides on the Charity Commission’s website which explains in outline the procedure; and http://tinyurl.com/pkoadz3, which explains exactly what you need to do before attempting to complete the registration application for the CIO – such as deciding on a name and who the trustees will be. They will all need to sign a Trustees Declaration Form.

The most onerous task is printing out and amending the Charity Commission model constitution for your CIO, which is only available in pdf format, to bring it into line with the constitution of your charity. A Charity number will, after some weeks have elapsed, be allocated to you and the CIO will appear on the Charity Commission website. The Commission may raise queries in the meantime.

Next steps

Organise a Special General Meeting of your charity at which a Special Resolution will be proposed to transfer the assets and liabilities of the Trust to the CIO, and to either dissolve the Trust or allow it to become a ‘Shell’ charity.

At the same time arrange for the trustees of the CIO to meet to be informed of the above proposal and for them to formally resolve to “take over the assets and liabilities of the Trust and use them for purposes similar to those to which they are currently being used”. A copy of this resolution will need to accompany the application to the Charity Commission for their approval for the asset transfer – see this link for full details and how to contact the Commission for their approval: http://tinyurl.com/z4zemvs

Finally

Pass the Special Resolution, then (using a solicitor) transfer any land or property from the Trust to the CIO (and have the transfer registered with the Land Registry) and transfer all other assets and liabilities to the CIO.

Once this has been done follow the link http://tinyurl.com/z279tnf to close your charity. Contact your membership to inform them that they are now members of the CIO!

Find out more about changing your charity structure at http://tinyurl.com/jv2t9ve. For more information on the Fry Art Gallery go to www.fryartgallery.org or email info@fryartgallery.org

More on CIOs

Charitable Incorporated Organisations (CIO’s) provide a means for charities to incorporate and gain the benefits currently available to companies without the burden of dual regulation by both the Charity Commission and Companies House. CIOs are administered by the Charity Commission which has sole responsibility for their formation and registration, and relate to England and Wales.

A CIO is a legal entity and can enter into contracts in its own right. It may also hold property in its own name which has advantages with regard to succession of the charity. As a separate legal entity, the members and trustees will normally be protected from becoming personally liable for any liabilities incurred by the CIO, a contrast with the current situation for an unincorporated charity where the members and trustees remain personally liable for such debts, property has to be held in the name of the trustees and trustees must undertake transactions on behalf of the charity.

Trustee insurance is available but always at a cost. Other administrative advantages are that smaller CIOs can prepare receipts and payments accounts, an option unavailable to companies.  Accounts and Annual Returns only need to be filed with the Charity Commission and there are no filing fees or late filing penalties for this, unlike Companies House.