Becoming a CIO: Funding Implications

Transcription

1 Becoming a CIO: Funding Implications Funding Landscape Conference York 23 October 2014 Gareth G Morgan Professor of Charity Studies, Sheffield Hallam University and Course Leader, MSc Charity Resource Management - SHU Centre for Voluntary Sector Research - SHU MSc in Charity Resource Management Centre for Voluntary Sector Research 1 1 CIOs: Principles 1.1 Charitable Incorporated Organisations: The Issue Key question: What is the simplest way to allow a charitable organisation to be established with corporate status and limited liability? Answer: a specific legal structure for charities UK is relatively rare in not (until now) having a specific legal structure for nonprofits Until recently, most charities established as: But Charitable trusts Charitable associations Charitable companies Charitable industrial & provident societies (IPS) = community benefit societies (CBS) Trusts and associations do not offer limited liability Trust and associations do not offer corporate status unless incorporated under s251 of Charities Act 2011 Charitable companies and CBS charities mean complying with two distinct systems of regulation [CBSs not considered further in this presentation] 3 Structure of Presentation 1.2 CIOs: A quick history 1. CIOs The principles Principles / Forming a CIO CIOs versus charitable companies Conversion of existing charities Accounting and Reporting for CIOs 2. Becoming a CIO steps for existing organisations Unincorporated charities Other existing voluntary organisations Charitable companies, CICs, CBSs 3. CIOs Accounting and reporting Year end accounts for CIOs 4. CIOs and Funding practical issues Dealing with funders Transferring support from an existing organisation Note: All points in this presentation are overviews only it is not a full statement of the law. Unless otherwise stated, all points are specific to CIOs in England and Wales, subject to the Charities Act Charities Act 1992 Parliamentary debate revealed lack of simple corporate structure for charities Mid/late-1990s Work by Charity Law Association on concept of a new corporate vehicle for charities Name Charitable Incorporated Organisation (CIO) proposed 2001 Principle supported by Charity Commission 2002 Government confirms support for CIOs in Private Action, Public Benefit Recommends implementation in England & Wales devolved administrations to make own decisions 2003 Home Office White Paper: Charities and Notfor-Profits: A Modern Legal Framework 2004 Draft Charities Bill (E&W) 2005 SCIOs (Scottish CIOs) enacted and OSCR established in Charities and Trustee Investment (Scotland) Act 2005 November 2006 CIOs for E&W become law in Charities Act CIOs for NI become law and CCNI established in Charities Act (Northern Ireland) Cabinet Office launched detailed consultation on regulations etc for CIOs in E&W but no immediate progress 2011 SCIOs implemented Lord Hodgson appointed for 5 year review of Charities Act Secures commitment that CIOs will be implemented (reported 2012) Charity law consolidated for E&W in Charities Act 2011 November 2012 Parliament passes CIO regulations for E&W January 2013 Charity Commission begins registering CIOs in England & Wales October 2014 Over 2600 E&W CIOs registered 4 1

2 1.3 Key features of CIOs 1.5 Forming a CIO A corporate body Can hold its own property Can sue and be sued in the name of the charity (rather than trustees personally) Limited liability A major claim could lead to the charity being liquidated, but no claim can be made against the personal assets of members or trustees provided they act properly Governing document Constitution Registration Entirely by the charity regulator (the registration creates the CIO and confirms its charitable status) every CIO is a registered charity Governance Charity trustees (similar to trustees/directors of a charitable company, but no obligations under company law) Accounting As for other non-company charities - special rules for charitable companies do not apply Name Normally ends with CIO unless the status is otherwise disclosed on documents Members A CIO always has a membership but it can have a wide body of members electing trustees (association CIO) or a structure where the only members are the trustees Insolvency Regulations in E&W create a similar framework to the insolvency arrangements for limited companies 5 1. Identify initial members (the applicants) and the proposed initial trustees 2. Prepare constitution Normally start from one of the Charity Commission models 3. Online registration application using Charity Commission portal Initial trustees sign normal trustees declaration Prepare statement of activities and how they will be carried out for public benefit Upload constitution, complete all other details for application and submit to CC 4. Charity Commission reviews application it can only register CIO if: (a) It will be a charity: must have exclusively charitable purposes for public benefit There is no such thing as a non-charitable CIO (b) Constitution meets the legal requirements (c) CC has no objections to proposed name 5. If agreed, at the moment of registration the CIO is formed It becomes a new corporate body AND a registered charity both at the same time But remember: The CIO does not exist until registered: so avoid raising funds or making commitments in advance So everything in the application needs to refer to the future: the proposed activities are., the trustees intend, the anticipated funding will be There will be some delay between application and registration although straightforward applications are being processed quite rapidly BUT - NO registration at Companies House The legal framework for CIOs in England & Wales 1.6 CIO Members Charities Act 2011 Sections (Part 11 of the Act) Statutory Instruments The Charitable Incorporated Organisations (General) Regulations 2012 SI 2012/3012 The Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012 SI 2012/313 Charity Commission regulations The Charities Act 2011 (Charitable Incorporated Organisations) (Constitutions) Regulations 2012 Model Constitutions by Charity Commission Foundation CIO (Members and trustees are same) Association CIO (Members and trustees different could have wide membership) Note: The above is specific to CIOs in England & Wales. Scottish Charitable Incorporated Organisations (SCIOs) are also available, registered with OSCR, but there are a number of significant differences between SCIOs and CIOs in E&W. 6 A CIO is a body of members Can have one or more members Members can be individuals or corporate bodies. No age limits for individuals. Limited liability Members rights Certain rights especially amending the constitution are reserved to members Unlike a charitable company, CIO members do not have to give a financial guarantee Members duties: It is the duty of each member of a CIO to seek to advance the purposes of the CIO Charities Act 2011, s.220 Membership structures Could have a single member CIO so one member (e.g. the founder or an existing charity) could have control over all trustee appointments Can allow a wide body of supporters/service users to have a formal vote in electing trustees Could specify members and trustees are identical (foundation CIO) Members register Must keep a register of members (name, address, dates of joining/leaving going back 10 years) Access to membership register is limited to members (if no members guarantee) Members can give service addresses 8 2

3 1.7 CIO Trustees A CIO is governed by its trustees Technically the charity trustees of the CIO In theory trustees can be individuals or corporate bodies but CC models only allow for human trustees Trustees must be 16 or over Appointment of trustees various possibilities can be specified in constitution: Elected by members Appointed by trustees Ex officio Nominate by external bodies Duties of trustees (1) Each charity trustee of a CIO must exercise the powers and perform the functions that the charity trustee has in that capacity in the way that the charity trustee decides, in good faith, would be most likely to further the purposes of the CIO. (2) Each charity trustee of a CIO must in the performance of functions in that capacity exercise such care and skill as is reasonable in the circumstances, having regard in particular (a) to any special knowledge or experience that the charity trustee has or purports to have, and (b) if the charity trustee acts as such in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession. Charities Act 2011, s Becoming a CIO steps for existing organisations 2.1 Unincorporated organisations Unincorporated charities Form CIO (but explain linkage to existing charity) Agree to wind up existing charity Typically needs a vote of members Old unincorporated charities without wind-up powers can pass resolution under s.268 of Charities Act 2011 All assets, agreements, liabilities need transfer/novation Needs a formal transfer agreement between old and new charities Staff will transfer contracts of employment must follow TUPE (Transfer of Undertaking Protection of Employment Regulations) Need to involved a solicitor or licensed conveyancer to transfer property Take care with transfer of individual funds: Restricted funds need to transfer with same restrictions Special rules for transfer of permanent endowment Best for transfer to take place at year end but start planning well ahead Voluntary Organisations not currently recognised as charities Same steps as above, but must be willing to work as a charity Similar processes for wind up of existing organisation Application for CIO registration will be for a completely new charity CIO Constitutions 2.2 Converting existing corporate bodies to CIOs Requirements constitution must comply with: Core requirements in Charities Act 2011 Additional provisions in CIO General Regulations 2012 Charity Commission regulation must follow CC models or be as close to that as circumstances permit Charities Act 2011 s.206(5) Constitutional amendments If made at a meeting need 75% in favour (or 100% by written resolution) Regulated alterations (e.g. changes of objects) require prior CC approval All amendments must be registered by CC before they take effect Can have entrenched provisions which cannot be changed without external consent or 100% agreement by members Fundamentals for every CIO constitution Name Principal office (England or Wales) Charitable purposes Powers Subject to anything in its constitution, a CIO may do anything which is calculated to further its purposes or is conducive or incidental to doing so. Charities Act 2011, s.216(1). Members and members meetings Trustees and trustees meetings Benefits to members/trustees and conflicts of interest Limitation of members liability Accounting, reporting, execution of documents, notices etc Dissolution 10 Charitable companies Direct conversions possible without winding up Charities Act 2011, ss The existing charitable company becomes a CIO no new organisation is created So no issues of transferring assets, employees etc Members guarantee in the company is extinguished if not more than 10/member Process Agree new CIO constitution and pass special resolution for the company to convert Best to avoid year end convert at a quiet time Still need to update communications and get consent from any third parties whose agreement is needed for constitutional changes Awaits implementation: detailed regulations expected in 2015 Community Interest Companies (CICs) Process will be similar but a CIC is not a charity so this will involve a new charity registration Have to agree charitable objects and be willing to accept limitations of charitable status If conversion succeeds the CIC becomes a CIO and gains all the benefits of charitable status Awaits implementation: detailed regulations expected in 2015 Community Benefit Societies (IPS) Steps will be similar, but even a charitable CBS is currently an exempt charity, so the conversion will involve applying for charity registration Implementation awaits regulations perhaps from some time in

4 3 CIOs: Accounting and Reporting 3.1 Year end accounts for CIOs - I 3.3 Year end accounts for CIOs III Principles A CIO is an incorporated body A CIO is not a company So in most respects CIOs are subject to the same accounting and reporting requirements as unincorporated charities (but see next slide) So take great care with terminology of incorporated/unincorporated charities Financial year First accounts of newly formed CIO must start from date of incorporation/registration as a charity First accounts can be for a period 6 mths to 18 mths CIOs established from conversion of unincorporated charities The four main legal forms of charity Charitable { Non-company charities trusts Charitable associations Charitable incorporated organisations } Unincorporated charities Accounts should start from nil and show incoming transfers from the old charity Make sure all assets & liabilities transferred if not, continued accounts needed for the former charity Audit/independent examiner s report Independent examination needed if income over 25,000 Use normal Charities Act 2011 wording a CIO is not a company Company charities { Charitable companies } Incorporated charities But undertake normal checks for a corporate body Year end accounts for CIOs - II 4 CIOs and funding: practical issues 4.1 Dealing with funders Receipts and payments accounts Permitted for CIOs up to 250K income However, two additional notes needed if applicable: (a) Details of any guarantees given by the CIO (if in force at year end) (b) Any secured debt outstanding at year end CIO General Regulations 2012, reg. 62 For avoidance of doubt may wish to state explicitly if no guarantees or secured debts A well produced statement of assets and liabilities contains essentially same information as an abbreviated balance sheet under Companies Act so R&P accounts should be fine for credit-rating etc Filing of accounts All CIOs must file TAR and accounts with the Charity Commission (no exemption for those under 25K) Normal deadline: 10 months from year end But audit/independent examination not compulsory under 25K income 14 Most funders that specifically support charities like CIOs: A CIO is always a charity so no doubts about charitable status As a corporate body, the boundaries are clear Less risk of funds disappearing into the hands of individuals The CIO itself can enter into binding agreements No problem of agreements made by former trustees who are no longer in post No complications of groups saying we are charity but not registered Every CIO is a registered charity No period in limbo when the organisation has been formed but not yet regd as a charity No problem of charities too small to file accounts Every CIO must file accounts with the Commission If the charity were to fail, there are clear insolvency procedures But not all funders yet understand CIOs Some are confusing CIOs (=charity) with CICs (=non-charity) Some are confusing CIOs and charitable companies So may need additional explanations and may need to add categories to application forms 16 4

5 4.2 Transferring support from an existing organisation to a CIO The CIO is a new charity Need to approach funders to ask them to transfer ongoing funding agreements May need time for negotiation make contact well the transfer date Individual donors/members If you have lots of supporters giving by standing order, try to get your bank to agree to transfer the bank account to the CIO Otherwise every donor would have to amend their standing orders Tax concessions Registering the CIO with the Charity Commission is separate from tax recognition To operate gift aid, the CIO needs to apply to HMRC for charity tax recognition Ask for continuity with the existing charity so that existing gift aid declaration still apply Gift Aid Small Donations Scheme: asked for continuity with claim by former charity Update all documentation Make sure all letters, appeal forms, collecting boxes, event details show the new charity name and registration no If the name of the CIO does not include CIO the fact that it is a charitable incorporated organisation must appear on all literature 17 Becoming a CIO: Funding Implications Funding Landscape Conference York 23 October 2014 For more on CIOs see: THANK YOU Gareth G Morgan Professor of Charity Studies, Sheffield Hallam University and Course Leader, MSc Charity Resource Management For more on charity accounts, see: