Partner Nick Burrows, in leading law firm Blandy & Blandy’s Charities team, explains the process and timescales involved when incorporating an existing charity.
Our experience in advising charities
We have acted, over the last few years, for many clients who wish to form charities, and for trustees of unincorporated charities who have elected to incorporate the charity.
The range of charities for which we have acted covers relatively large service delivery charities, smaller grant giving charitable trusts, almshouses, village halls, pre-schools and charities holding sports fields or similar community assets.
Blandy & Blandy’s experience is working with charities has previously been recognised nationally in Chambers UK Guide and the firm is recommended in The Legal 500.
The process
Where clients wish to form a new charity, there are three options available – the charitable trust (which is suitable for a small grant giving charity which will have no employees and will not own property), a company limited by guarantee, and a Charitable Incorporated Organisation (CIO).
Generally, where it is not appropriate to form the charity as a charitable trust, or where the existing charity is in the form of a charitable trust, we have almost always formed the new charity or incorporated the existing charity as a CIO rather than as using the company limited by guarantee. In most cases (although not the village halls) these are incorporated as Foundation CIOs (where the only members are those people who are also the trustees of the charity). In some cases, however, it will be appropriate to use the Association CIO model, where there is a broad class of members or potential members of the CIO, and the CIO is run by a smaller board of trustees – in other words, the members and the trustees are not the same.
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 charities or currently unincorporated charities.
Whilst a company limited by guarantee gives the benefit to trustees of a separate legal entity with limited liability for its members, as it is a company formed under the Companies Acts, it is also required to comply with those Acts and is required to file various documents at Companies House. Any charity which operates through the medium of a company limited by guarantee will also, of course, need to comply with charity law and will be regulated by the Charity Commission as well as by Companies House.
By contrast, a CIO, whilst also being a separate legal entity with limited liability for its members, can be used only by charities, and is subject to regulation only by the Charity Commission, and not by Companies House.
Our services for charities
Our service to charities and trustees in relation to the formation of a new charity or the incorporation of an existing charity covers:
- initial discussions with trustees covering the assets and liabilities of the charity;
- advice to the trustees throughout in relation to all matters pertinent to the formation or incorporation on which we are instructed;
- agreeing with trustees the most appropriate vehicle for formation or incorporation;
- how the assets and liabilities and any employees will be transferred into the new incorporated charity;
- drafting the trust document or constitution;
- completing the application at the Charity Commission;
- effecting the transfer of assets and liabilities to the new charity once it is formed or incorporated; then (where we are incorporating an existing charity);
- dissolving the old charitable trust once the transfer process has been completed.
Timescale
So far as likely timescales are concerned, our experience is that discussion of the transaction with trustees, drafting the new constitution and making the application to the Commission will typically take between two and three months, depending 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 organisation or charity has employees, trustees may want to instruct us to assist in the arrangements for the transfer of employees under the provision of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)).
Where the current 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, which will also need to pass a resolution to authorise the incorporation.
So far as the actual incorporation of the new CIO is concerned, the Commission can often take up to six months to deal with the registration of a new charity. However, we have found over the last year or so that where an application for the incorporation of an existing charity is properly completed, the Commission can complete the incorporation of the CIO in as little as a week.
If there are any matters on which the Commission is unclear, or about which it has concerns, then it will raise questions which will, of course, delay the incorporation.
So far as the transfer of assets and liabilities is concerned, this can take the form of a vesting declaration, which has the effect of transferring property which has no restrictions to the CIO to be held as part of its corporate property, and to vest 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 transfer all of the assets other than land to the new CIO and to deal with TUPE and the charity’s employees.
Stocks and shares and other investments will often need to be transferred using stock transfer forms, but we would consult with any financial advisers involved with the charity to ensure that the correct method of transfer is used for each particular type of investment.
In our experience, there are few conflicts of interest which arise upon incorporation. There is a technical potential trustee benefit issue, where the new CIO gives an indemnity to the trustees of the transferring charitable trust, and that can be dealt with by obtaining the consent of the Charity Commission to the arrangement. We would hope to identify any potential conflicts of interest early on in the process and would advise trustees on the application of the relevant law and on the application of the charity’s own conflicts of interest policy, if it has one.
Costs
A member of our Charities team would be happy to review your charity’s situation, and to discuss your aims, in order to provide further information, including in relation to costs.
For further information or legal advice, please visit www.blandy.co.uk.
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