The Act Commentary on Sections Section 34 and Schedule 7: Charitable incorporated organisations
131.Section 34 and Schedule 7 make provision for a new legal form, the Charitable Incorporated Organisation (“CIO”). The CIO is the first legal form to be created specifically to meet the needs of charities. Its purpose is to avoid the need for charities which wish to benefit from incorporation to register as companies and be liable to dual regulation by Companies House as well as the Charity Commission.
132.The suggestion of a new legal form for charities was first made in the Department of Trade and Industry’s review of company law in 2001(6). It was subsequently developed by an advisory group set up by the Charity Commission. The proposal was endorsed by the Strategy Unit whose report provides a summary of the CIO’s main characteristics(7). Further detail was given in a background paper. In its reply to the Strategy Unit, the Government accepted the proposals for CIOs and said that it proposed to review the need for other legal forms five years after the CIO is introduced(8).
133.The Act sets out the basic framework for the CIO. Further technical provisions, which may need amendment in the light of experience of the CIO’s operation, will be contained in secondary legislation. An exposure draft of the relevant secondary legislation is available at http://communities.homeoffice.gov.uk/activecomms/ac-publications/publications/290701/charities_dummy_reg.pdf..
134.Section 34 is preparatory. Schedule 7, which contains the substantive provisions, proceeds by inserting a new Part 8A (sections 69A-Q) and a new Schedule 5B into the Charities Act 1993 and making various minor amendments to that Act. The new Part 8A contains provisions dealing with the nature and constitution of the CIO; its registration as a charity; the conversion of a charitable company, registered industrial and provident society or community interest company into a CIO; the amalgamation of CIOs; the transfer of a CIO’s property, rights and liabilities to another CIO; and the Minister for the Cabinet Office’s power to make regulations about the winding up, insolvency and dissolution of CIOs, and about their administration. The new Schedule 5B contains supplementary technical provisions. Part 2 of Schedule 7 contains amendments to the Charities Act 1993.
135.Section 69A requires a CIO to be a body corporate with a constitution, a principal office in England or Wales and one or more members with no or limited liability.
136.Section 69B specifies the matters that must be stated or provided for in the CIO’s constitution, requires the constitution to be in a form specified by the Charity Commission and written in English (or in either English or Welsh if the CIO’s principal office is in Wales), and enables the Minister for the Cabinet Office to make further provision in regulations.
137.Section 69C requires the CIO’s name to appear in legible characters in various business and financial documents, and for these documents to state that the organisation is a CIO if that is not clear from the organisation’s name.
138.Section 69D creates criminal offences of failure to comply with the previous section, and one other offence.
139.Section 69E allows any one or more persons to apply to the Commission for a CIO to be constituted and registered as a charity, requires the applicants to supply the Commission with the CIO’s proposed constitution and any other documents or information that may be required and specifies the circumstances in which the Commission may or must refuse the application.
140.Section 69F provides that if the Charity Commission registers a CIO as a charity it becomes by virtue of its registration a body corporate constituted in accordance with the application. The entry in the register is to include the date of registration and a note saying that the charity is constituted as a CIO, and a copy of the entry is to be sent to the CIO at its principal address.
141.Section 69G allows a charitable company or a registered industrial and provident society (except for a company or society which has a share capital not fully paid up, or which is an exempt charity) to apply for conversion to a CIO. It requires the Charity Commission to be supplied with certain documents and information, including a copy of the special or unanimous written resolution that the company or registered society should be converted to a CIO and a copy of the resolution adopting the CIO’s proposed constitution. If the application is made by a company limited by guarantee the constitution must specify the amount up to which the members are liable, which amount is not to be less than the amount to which they would be liable if the assets of the company were wound up. Where the members’ guarantee is £10 or less, it is automatically extinguished on conversion of the company to a CIO.
142.Section 69H and section 69I contain supplementary provisions about the conversion of companies and registered industrial and provident societies. Section 69J provides the Minister for the Cabinet Office with a power to make regulations providing for the conversion of a community interest company into a CIO, and for its registration as a charity.
143.Section 69K allows any two or more CIOs to apply to the Commission to be amalgamated. Before such an application can be granted, each of the CIOs affected has to pass a resolution either by a 75 per cent majority of those voting at a general meeting or unanimously otherwise than at a general meeting, and to give notice of the proposed amalgamation in the way that in the opinion of the trustees will make it most likely to come to the attention of those affected. Those affected may make written representations to the Charity Commission, and the Commission may refuse an application if there is a serious risk that the new CIO would be unable to pursue its purposes. The Commission may also refuse an application to amalgamate if it is not satisfied that the constitution of the amalgamated CIO makes the same, or substantially the same, provision on these matters:
	purposes;
	application of property on dissolution;
	benefits authorised to be paid to trustees or members of the CIO, or persons connected with trustees or members,
as the constitutions of each of the CIOs forming the amalgamated CIO.
144.Section 69L contains supplementary provisions on amalgamations.
145.Section 69M allows one CIO to transfer all its properties, rights and liabilities to another. If a CIO resolves to make such a transfer, the Charity Commission must be sent a copy of the resolution, and may direct the CIO to give public notice of the resolution. If the Commission so directs, it must take into account any representations made by interested parties. The resolution does not take effect until it is confirmed by the Commission, and the Commission must refuse to confirm it if there is a serious risk that the transferee CIO would be unable properly to pursue the purposes of the transferor. The Commission may refuse to confirm the resolution if it is not satisfied that the constitution of the transferee CIO makes the same, or substantially the same, provision on these matters:
	purposes;
	application of property on dissolution;
	benefits authorised to be paid to trustees or members of the CIO, or persons connected with trustees or members,
as the constitution of the transferring CIO. A resolution would be deemed to be confirmed within six months of its receipt by the Commission, unless the Commission had already confirmed or refused to confirm the resolution, or had extended the period of its consideration by up to an additional six months.
146.Section 69N allows the Minister for the Cabinet Office to make regulations about the winding up, insolvency, dissolution, and revival and restoration to the register following dissolution, of CIOs.
147.Sections 69O-Q contain miscellaneous supplementary provisions, including at section 69Q a power for the Minister for the Cabinet Office to make regulations about applications for registration of CIOs, the administration of CIOs, and CIOs generally.
148.The new Schedule 5B makes further provision about CIOs. Paragraph 1 enables a CIO to do anything which is calculated to further its purposes and gives the CIO’s charity trustees the responsibility of managing its affairs. Paragraphs 2 to 4 contain provisions to do with the CIO’s constitution. Paragraphs 5 to 8 concern the validity of acts done by the CIO and provide that, in general but with some limitations, the validity of those acts may not be called into question on the ground that the CIO lacked constitutional capacity. Paragraphs 9 and 10 require members of a CIO and CIO charity trustees, subject to regulations made by the Minister for the Cabinet Office, to act in the way most likely to further the purposes of the CIO and, in the case of trustees, to exercise reasonable care and skill. Paragraph 11 prevents CIO charity trustees from benefiting personally in certain circumstances from arrangements or transactions entered into by the CIO. Paragraph 14 allows a CIO to amend its constitution and specifies the circumstances in which it may do so. Paragraph 15 requires the CIO to send the Charity Commission a copy of the amendment and allows the Commission to refuse to register it in certain circumstances.
149.The remainder of the Schedule consists of minor, largely consequential, amendments to the Charities Act 1993.