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This article originally appeared in Bristows' Charities and Not-for-Profit newsletter.

The Office of the Third Sector has published a Summary of Consultation Responses and Next Steps following a consultation on the Charitable Incorporated Organisation ("CIO") which was carried out jointly by The Office of the Third Sector and the Charity Commission at the end of 2008.  This update outlines some of the conclusions reached by The Office of the Third Sector and the Charity Commission following the consultation and the next steps that they propose for the CIO.

By way of background, the CIO is a new type of incorporated entity for charities.  It is the first legal vehicle designed specifically for charities and will fall under the sole jurisdiction of the Charity Commission.  It will add to the range of legal forms currently available to charities and will have the advantage of only being subject to charity law, unlike companies limited by guarantee which are subject to both charity and company law.  The CIO will have its own legal personality that will be separate from that of its trustees (unlike trusts and unincorporated associations) and it will therefore be able to conduct business in its own name, and the trustees will not be liable for its liabilities.  However, trustees of CIOs will continue to have the same fiduciary duties as all other charity trustees.

So that the CIO may be suitable for different types of charitable organisation, the Charity Commission is preparing two forms of model constitution for CIOs:

• the Foundation Version, for CIOs whose trustees will also be the CIO's corporate members; and
• the Association Version, for CIOs with a wider voting membership, whose corporate members will be distinct from but may include its trustees.

As a result of the consultation, the Government and the Charity Commission have reached the following conclusions.  This is not an exhaustive list, but it sets out decisions which will be of general interest:

• CIOs will have to keep and maintain a register of trustees and members.
• CIO charity trustees should be under the same duty of care as that applicable to other charity trustees generally.
• CIO trustees should be explicitly prohibited from participating in any decision where they would personally benefit, unless the nature of that benefit is extremely unlikely to give rise to a conflict.
• The minimum age of CIO charity trustees should be 16, mirroring that for trustees of charitable companies.  However, CIOs should be able set a higher minimum age in their constitutions.  The Charity Commission intends to issue guidance about the appointment of trustees who are under 18, which will include a recommendation that at least one trustee should be at least 18.
• For certain important decisions, for example, in respect of dissolution, special procedural requirements should be followed.
• The only rights of members of CIOs enshrined in the CIO Regulations to be made under the Charities Act should be rights in relation to notices of meetings at which constitutional amendments or dissolutions are to be considered.  In all other respects, it should be left to individual CIOs to determine the rights that members should have and to include relevant provisions in their constitutions.
• CIO members should not have an automatic right to remove CIO trustees, but CIOs should be able to opt to include such provisions in their constitutions.  An optional clause to this effect will be included in the model constitutions.
• The CIO Regulations should not prevent bodies which do not have legal personality distinct from that of their trustees, e.g. unincorporated associations or trusts, from becoming CIO members.  It should be for each CIO to decide whether provisions to the contrary should be included in its constitution.
• CIOs should have similar flexibility to companies to provide in their constitutions for procedural requirements for the amendment of their constitutions that are more restrictive than the default provisions contained in the Charities Act.

Changes are being made to the draft CIO Regulations that will set out the detailed legal framework for CIOs and to the draft Model Constitutions, and it is expected that they will be published before the end of 2009.

The Government aims to start implementation of the CIO legislation in late spring 2010, but it is yet to be decided whether this will all be done at the same time or whether it will be phased, for example by deferring the facility for existing charitable companies and registered industrial and provident societies to convert into CIOs until the first rush of new incorporations of CIOs has been dealt with.