Tips on Forming Charitable Incorporated Organisations

How can charitable organisations make a difference in their local community? 

Communities throughout the UK can benefit from several different organisations and outreach programmes. These organisations are usually structured in one of two ways. Companies can choose to form a Charitable Incorporated Organisations or a charity limited by guarantee.

Community

Both legal corporate structures will allow them to accomplish great things within the community. But there are some significant differences they’ll want to pay attention to when forming a community outreach organisation. The structure they choose will greatly affect the way they can impact the local community.

If a company is leaning toward forming a Charitable Incorporated Organisation, then this article is worth reading. This article is going to discuss everything they need to know about going that route. 

There’s a lot of information to cover, so read on until the end!

What is a Charitable Incorporated Organisations?

What is a Charitable Incorporated Organisations?

Companies looking for another option when forming their charity may choose to form charitable incorporated organisations. These are slightly different from charities limited by guarantee.

For starters, a CIO is limited by shares. This means the company has investors, shareholders, board members, and trustees. A CIO will still be a “corporate entity” but will fall under the legislation of charities.

There are extra rules and regulations on the books governing the conduct of charities and their staff. This isn’t meant as a scare tactic. The board of a CIO, and any other trustees, just need to be careful as they conduct daily operations.

CIO is limited by shares

Violation of some of these rules and regulations can result in legal offences. Therefore, it pays to be careful.

In addition to laws about the organisation’s conduct, there are also laws governing the charity’s finances. UK law limits the amount of money that any board members or trustees can receive for the service they provide to the charity.

CIO management will also need to pay close attention to the organisation’s books. Board members and trustees may be able to write off expenses associated with the company. They just need to be very careful in doing so.

Any application to form a CIO must also go through the Charity Commission.

Charity Rules: What Is a Governing Document for a Charity?

What are the charity rules?

The first important step to forming a CIO is going to be writing out the organisation’s Governing Document. This is a legal document that will serve as the “handbook” for the entire company. The purpose of the Governing Document is to establish the following:

  • The charitable cause (the purpose it will serve in the community)
  • The charity’s powers (what it can do to carry out its purpose)
  • Who runs the charity
  • Who can be a member
  • The structure of meetings and appointing trustees
  • Rules for investments, salaries, and holding property
  • Do trustees and board members have the right to change the Governing Document
  • Procedure for the dissolution of the charity
Governing Document a legal document that will serve as the “handbook” for the entire company

Board members must ensure the trustees receive a copy of this document. This will be the trustees’ “playbook” for how to run their organisation. Important information like how many trustees are necessary to pass a vote, how to manage their charity’s finances, and how to resolve internal conflicts will be written inside.

Drafting Your Governing Document

It’s popular for charities to choose to use a template for their Governing Document

Since the Governing Document will be the backbone of the charity, the founding members will want to take special care when drafting it. It’s popular for charities to choose to use a template for their Governing Document. The Charities Commission provides a template on their website that they recommend all organisations to use.

Using the Charities Commission’s template will make it easier to register the charity when the time comes. But, if an organisation chooses to write their own Governing Document, the Charities Commission’s template can still serve as a great reference. The template will help them get a feel for what a Governing Document should look like and what information it needs to contain.

different types of Governing Documents

There are a few different types of Governing Documents. Choosing the right one will depend on which type of structure is being used to form their organisation.

Unincorporated associations must draft a Constitution for their organisation. CIOs need to draft a foundation or association Constitution. Other charitable companies must file a memorandum and articles of association.

Lastly, trusts must provide either a trust deed or will.

What organisational structure is a charity?

What organisational structure is a charity?

What makes choosing the charity structure so important? Above, there are different Governing Documents for each type of charity structure. The reason that charitable organisations fall into these different categories is that they each have their own individual functions and benefits.

As a result, making sure they choose the right charity structure for their organisation is an important part of the trustees’ duties. It will affect a lot of major decisions later on down the line.

The four main charity structures they can choose from are:

  • A trust
  • A CIO (Charitable Incorporated Organisation)
  • A charitable company (limited by guarantee)
  • An unincorporated association
Charity members

They’ll need to think about their members. The size of their membership is going to influence which structure is best for their organisation.

If they plan on having a wider membership for their charity, an association CIO may be the best structure for them. This is especially true if they plan to have voting members other than the trustees in their charity.

Their Governing Document of choice will be the association CIO constitution. The Charities Commission has a template that they should stick very close to. They’ll then want to register their CIO with the Charities Commission to bring it into existence.

register CIO with the Charities Commission

From there, it will help if they keep a register of trustees and voting members. They’ll also need to send the accounts and annual returns to the commission every year for review. This is a necessary step regardless of an organisation’s income.

The other option they have for lesser membership is a foundation CIO. In the case of a foundation CIO, only the trustees are members. The trustees will also be the only ones doing any voting.

The same steps necessary for an association CIO apply to a foundation CIO. If a charity eventually finds out another constitution is better for their organisation, they can amend their constitution to reflect a new structure.

Eligibility

Eligibility

What factors determine if a charity is eligible to submit a charitable incorporated organisation application form? The first part of the equation is the organisation’s purpose.

To be eligible to form a CIO, an organisation first needs to have a charitable purpose. Her Majesty’s government clearly defines this in the laws of the High Court.

purposes should be in the governing document

An organisation’s purposes should be in the governing document. As long as these services fall within the government’s definition of purposes and are deemed to serve the public good, an organisation has a valid charitable purpose.

Once a company has a valid charitable purpose, they need to make sure they’re following all other charitable laws. These are issued by the High Court.

Once they meet these two parameters, their organisation is eligible to be a CIO.

How to Find Trustees?

How to Find Trustees?

Trustees are the lifeblood of any CIO. They help to reach new beneficiaries, keep up with new technology, and help with fundraising activities. Bringing in new trustees can refresh a charity’s perspective and help bring innovation to its charitable purpose.

The board members will want to look for people who have the skills their charity needs. They need to have an interest in your charitable cause and also have the time to help run the organisation. It takes time and commitment to work as a trustee.

Board of trustees

As far as recruitment methods, there are plenty of options. Charities can use social media or websites that focus on trustee recruitment. They can also find trustees in their local community via referral or “word of mouth”.

Organisations have also had success bringing trustees up from within. Any volunteers that are currently within an organisation may make great trustees. They’re passionate about the charity’s cause and are willing to get involved.

criteria for trustees

Individuals must be at least 18 years old to qualify to be a trustee. Charities need to look into their criminal background as well. Certain convictions on their record may prevent them from being a trustee.

Contact the Charities Commission to see who would and would not qualify. In certain circumstances, the commission may be willing to sign a waiver for a particular trustee.

Meeting the Public Benefit Requirement

meeting the public benefit requirement

As mentioned earlier, a charity needs to meet the public benefit requirement. This means any organisation needs to benefit the public good.

The phrase “public benefit” has two parts: public and benefit. Each of these is considered separately in terms of UK law.

To meet the “public” part, a charitable organisation needs to benefit a “sufficient section of the population”. This is up to the Charities Commission to decide. What’s “sufficient” will depend on their charitable cause.

The phrase “public benefit” has two parts: public and benefit

Satisfying the benefit aspect is different. To qualify as a “benefit”, a charity needs to provide a service that can be backed by evidence. It can’t be a personal opinion, and the “benefit” needs to be able to be proven if the commission asks.

The overall effect of this “benefit” must be positive, as well. There can be some negative, but the positive must outweigh the negative significantly.

This also needs to be proven by evidence. It can’t be based on personal views.

We’re Here to Help

We are here to help

There are a lot of rules and paperwork involved with Charitable Incorporated Organisations. Let us help. We can help navigate the role that the Charities Commission plays in the process.

We can also help charities navigate any other challenges they might face along the way. Contact us today and let us prove how our years of CIO expertise can help an organisation thrive.

Contact KG Accountants today!

Arrange a FREE initial consultation.

0207 953 8913

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Categories: Charitable incorporated organisation (CIO), Charitable Incorporated Organisations, Charities, Charity, Charity registration, register a cio, Unincorporated association

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