Nick Burrows and Harriet Parfitt, in our Charities & Education team, explain the process and timescales involved when incorporating an existing charity.
Our experience in advising charities
We regularly act for clients who wish to form charities, as well as for trustees of existing, unincorporated charities who are looking to incorporate their charity.
The charities for which we have acted range from service delivery charities and grant-giving charitable trusts to alms houses, village halls and pre-schools, as well as charities holding sports fields or similar community assets.
The process
Where a client wishes to form a new charity, there are three options available to them:
- Set up a charitable trust (most suited to a small grant giving charity with no employees or property);
- Form a company limited by guarantee; or
- Establish to Charitable Incorporated Organisation (CIO).
Generally, we have almost always formed a new charity or incorporated an existing charity as a CIO.
- In most cases (except for 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), and the organisation is run by a separate, smaller board of trustees.
Whilst it is possible still to use the vehicle of a company limited by guarantee upon incorporation there is, in our experience, little merit in doing so for most new or currently unincorporated charities.
The differences between a Charitable Incorporated Organisation and a company limited by guarantee
We have highlighted the key differences between CIOs and CLGs below:
|
CIO |
CLG |
|
✓ Separate legal entity ✓ Limited liability for members ✓ Subject to charity law only
X Can only be used by charities |
✓ Separate legal entity ✓ Limited liability for members
X Required to comply with company and charity law X Additional filing requirements |
Our service
We provide a full service to charities and trustees in relation to the formation of a new charity or the incorporation of an existing charity, which includes:
- reviewing the constitution, assets and liabilities of the existing charity with its trustees (if applicable);
- advising the trustees in relation to all matters pertinent to the formation or incorporation on which we are instructed;
- deciding, together with the trustees, on the most appropriate vehicle for formation or incorporation;
- advising on how assets, liabilities and any employees will be transferred into the newly incorporated charity;
- drafting the trust document or constitution of the newly incorporated charity;
- completing the application to register the new charity at the Charity Commission;
- effecting the transfer of assets and liabilities to the newly incorporated charity once it is formed or incorporated; and
- dissolving the old charitable trust once the transfer process has been completed (if applicable).
Timescale
Application stage
In our experience, discussions of the transaction with trustees, drafting a new constitution and making the application to the Commission will typically take between two and three months. This is dependent upon the complexity of the constitution, any unusual assets or liabilities which need to be considered, and any other relevant matters (for instance, where the charity has employees, trustees may want to instruct our Employment team to assist with the transfer of these employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)).
Where an unincorporated charity has a wider membership than its board of trustees, this process is likely to take longer, as, once the trustees have decided on the appropriate way forward, this will have to be explained to, and agreed by, the wider membership, who will also need to pass a resolution to authorise the incorporation.
Registration stage
The Commission can often take at least six months to deal with the registration of a new charity. Moreover, if there are any matters on which the Commission is unclear, or about which it has concerns, it will raise questions. This may, of course, delay the incorporation.
Transfer stage
The transfer of assets and liabilities may take the form of a vesting declaration, which has the effect of:
i) transferring property (without restrictions) to the CIO, to be held as part of its corporate property; and
ii) vesting legal title to any permanently endowed property in the CIO, to be held upon its original trusts
We also usually use an asset transfer agreement to:
i) transfer all the assets (other than land) to the new CIO; and
ii) deal with TUPE and transferring the employment of the charity’s employees.
Stocks and shares and other investments will often need to be transferred using stock transfer forms, but we will consult any financial advisers involved with the charity to ensure that the correct method of transfer is used for each investment.
Other considerations
In our experience, there are few conflicts of interest which arise upon incorporation. There is sometimes a technical trustee benefit issue, where the current trustees and the trustees of the new CIO are the same people and the new CIO gives an indemnity to the trustees of the transferring charitable trust, but this can be dealt with by obtaining the consent of the Commission to the arrangement.
We would hope to identify any potential conflicts of interest early in the process. Most importantly, our advice will always consider the law surrounding conflicts of interest and the application of the charity’s conflicts of interest policy, if it has one.
For further information or legal advice, please contact 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.
