Charitable incorporated organisations: time for action

All but a few charities are established either as unincorporated trusts or associations or as registered companies limited by guarantee. As our society becomes ever more litigious and as our legislators discover ever more opportunities to regulate what we do, so increasingly charitable trustees need to seek what protection they can. The obvious way to put in place at least a first line of defence is to incorporate the charity.

Incorporation comes at a cost. This is caused not so much by dual regulation '“ the Registrar of Companies and the Charity Commission '“ with the requirement to file annual returns and accounts at both Companies House and with the commission, as by the fact that the Companies Acts are commercial in nature. It may seem a small thing but even the terminology used in the Companies Acts appears out of keeping with the ethos of a not-for-profit organisation run largely by volunteers.

This situation was recognised by the Company Law Review Steering Group, which in March 2000 wrote: 'We believe that there is advantage in having a separate vehicle for charitable companies which would be more specifically attuned to their needs and to the public policy interest in the regulation of charities as well as removing the burden of dual registration and reporting' (Modern Company Law for a Competitive Economy, Volume 5, 'Developing the Framework').

This proposal found fulfilment in section 34 and schedule 7 of the Charities Act 2006 and the relevant legislation having travelled backwards in time to be incorporated into the Charities Act 1993 (sections 69A to 69Q and schedule 5B) is now to be found in sections 204 to 249 of the Charities Act 2011. This provides for the establishment of charitable incorporated organisations, which are bodies corporate with a constitution and registered as a charity.

The 2006 Act received Royal Assent in November of that year. The passages relating to CIOs were refreshingly well drafted. But before CIOs can come into being parliamentary regulations to fill in the details are necessary together with model constitutions to be prepared by the commission.

By mid-2008 the two key sets of statutory instruments needed to breathe life into CIOs and two model constitutions had been drafted and were subjected to a consultation process ending in the following November. This is not the place to comment on the quality of the drafting of the statutory instruments other than to remark that the draftsman seemed determined to get his own back for the relatively straightforward drafting of the primary legislation.

Tired of waiting

The story since then seems to be one of what can best be described as prevarication by government. Responsibility seems to lie with what was originally the Office of the Third Sector which was translated into the Office for Civil Society following the general election. At one time reference to CIOs was quite common and as late as last November the minister was clearly indicating that the long-awaited legislation would be in place by the spring. It is now all but impossible to find any information on the OCS website.

The commission clearly got tired of waiting and in January last year published model constitutions, one for charities with trustees and no other member and one with a non-trustee membership. But these model constitutions are like a train without an engine.

Not all practitioners are enthusiastic about CIOs but they fill the gap to which the Steering Group drew attention 11 years ago. What makes this inexplicable delay all the more frustrating is that CIOs have been available in Scotland since last April and apparently some 20 per cent of all new registrations there are CIOs.

Charity law moves at a stately place. Until 2006 the preamble to the 1601 Charitable Uses Act was still cited as giving guidance on charitable status. Do we have to wait another 400 years for CIOs to go live?

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