Charities | Transferring assets to a new-model charity

Since 2 January, the Charity Commission has been able to register new charities as CIOs. In due course, charitable companies and charitable industrial and provident societies (if they are not exempt charities) will be able to convert to CIOs. This is not expected to be introduced ?until 2014.

Registration of CIOs to take over undertakings from unincorporated charities will be phased in according to the income of the unincorporated charity. Details can be found on the commission’s website. This article concentrates on the process of transferring assets from an unincorporated charity to a CIO.

The usual powers an unincorporated charity has of transferring its assets to a charitable corporation include the following:

a) transfer under a dissolution clause;

b) transfer by way of amalgamation under an express power; and

c) express power to transfer assets to another charity in furtherance of the charitable objects.

Such transfers do not generally require any action on the part of the Charity Commission. (Transfers of liabilities require different treatment as issues of conflict of interest may arise for trustees.)

Once a power to make the transfer is identified, it is possible to effect the transfer by a pre-merger vesting declaration under section 310 of the Charities Act 2011. In the case of a transfer of assets from an unincorporated charity to a charitable company, a pre-merger vesting declaration can only transfer unrestricted assets to the company to be held as corporate property (section 306). However, the charitable company can become trustee of the property held as permanent endowment or on special trust. It may be possible to achieve this under the existing trustee powers but often it is necessary for the Charity Commission to appoint the charitable company as sole trustee so it ?has the protection of being a trust corporation in respect of the trusts (section 354 and paragraph 3 (1) of schedule 7).

In addition, charities often wish to have the unincorporated charities of which the charitable company is trustee as well as the charitable company itself treated as one charity for registration and accounting purposes and a linking direction is made to this effect under section 12(1)(a).

A CIO holds trust property in exactly the same way as a charitable company. What does distinguish CIOs from charitable companies is that the process for arriving at the end result of transferring the unrestricted assets and the permanent endowment is more straightforward. Trustees of an unincorporated charity can use a pre-merger vesting declaration under section 310 to transfer unrestricted assets (for example, assets held for the general purposes of the charity) to either a charitable company or to a CIO. But in the case of a transfer to a CIO, trustees of an unincorporated charity can use a pre-merger vesting declaration to transfer both unrestricted property and permanent endowment and special trust property (including designated land). This is because of section 310 as amended by regulation 61 of the Charitable Incorporated Organisations (General) Regulations 2012 (SI 2012/3012).

Using a pre-merger vesting declaration has the effect that the charitable trusts and the CIO are treated as one charity and the CIO has trust corporation status in respect of the charitable trusts. This is a simpler process to that available for transfers to charitable companies.