Our Charities & Education team explain the process and timescales involved when incorporating a charity.
We regularly act for clients who wish to form a new charity, as well as for trustees of existing unincorporated charities who wish to restructure into a CIO or charitable company. Often referred to as "incorporating".
The charities for which we have acted range from service delivery charities and grant-giving charitable trusts to almshouses, village halls and pre-schools, as well as charities holding sports fields or similar community assets.
Drawing from our experience, this article outlines the processes and timescale for incorporating a charity, aiming to provide a small insight into what can be expected.
Available charity structures
Where a client wishes to form a new charity, there are three main options available to them:
- Charitable Trust;
- Company Limited by Guarantee (CLG); or
- Charitable Incorporated Organisation (CIO).
Where a client wishes to form a new charity, or an existing unincorporated charity wishes to incorporate, we generally advise they do so into a CIO.
- In most cases (except for charities, such as, village halls), these are incorporated as Foundation CIOs (where the only members are those people who are also the trustees of the charity).
- However, in some cases, it will be appropriate to incorporate as an Association CIO, where there is a broad class of existing members (or potential members) who have voting rights, and the organisation is run by a separate, smaller board of trustees.
Charitable Trusts are most suited to small grant giving charities with no onerous contracts, employees or property. Whilst functionable options, CLGs struggle to compare with CIOs in most cases (which were introduced in 2013 to offer a simpler, safer, and more efficient charity structure).
The following are some of the key differences between CIOs and CLGs:
|
CIO |
CLG |
|
✓ Separate legal entity ✓ Limited liability for members ✓ Subject to charity law only ✓ Regulated by Charity Commission only
X Can only be used by charities |
✓ Separate legal entity ✓ Limited liability for members
X Subject to company and charity law X Regulated by Charity Commission and Companies House |
The process
We offer a full service to charities and trustees in relation to the formation of a new charity, or the incorporation of an existing unincorporated charity, into a CIO, which includes the following process:
- reviewing the governing documents, accounts, assets and liabilities of the existing unincorporated charity (if applicable);
- if needed, assessing whether any permanent endowment trusts or special trusts exist;
- agreeing the most appropriate CIO model for formation or incorporation;
- adding the required powers, as needed, into the governing documents of the existing unincorporated charity giving the trustees the powers to restructure (if applicable);
- drafting the governing document of the CIO;
- preparing and submitting the CIO registration application to the Charity Commission;
- advising on how assets, liabilities and any employees will be transferred into the CIO (if applicable);
- effecting the transfer of assets and liabilities to the CIO once it is formed or incorporated (if applicable); and
- making the merger notification to the Charity Commission and removing the existing unincorporated charity once the transfer process has been completed (if applicable).
The timescale
Completing points 1 to 4 can take up to three months. This is subject to the complexity of the governing documents and accounts, any unusual assets or liabilities which need to be considered, and any other relevant considerations.
Completing points 5 to 6 can take up to six months. The Charity Commission alone can often take up to six months to deal with the registration of a new charity. Moreover, the Charity Commission may raise queries regarding the registration application, which will require answering, sometimes extending this six month period.
Completing point 7 to 8 may take up to four months. Trustees may additionally require advice from our Commercial Property Team (for property transfers, Land Registry filings and Stamp Duty exemptions), Employment Team (for employee transfers under Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) regulations), Dispute Resolution Team (for tenancy agreements or resident licences), as well as their external advisors and third parties (including, but not limited, to accountants and insurers).
Completing point 9 may take up to two months. This is subject to the timeframes at the Charity Commission and Land Registry (as applicable).
Other considerations
Other considerations include conflicts of interest which may arise where an existing unincorporated charity incorporates into a CIO. There is sometimes a technical trustee benefit issue where the trustees of the existing charity and the trustees of the CIO are the same people and the CIO gives an indemnity to the trustees of the existing charity. This can usually be dealt with by obtaining Charity Commission consent, however.
We would hope to identify any potential conflicts of interest, as well as any other considerations, early in the process. Most importantly, our advice will always consider the law and the application of the existing charity’s policies (as applicable).
For further information or legal advice on incorporating a charity or any other matter of charity law, please email law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
