New Corporate Options for Charities

The Charities Act 2006 was given Royal Assent in November 2006. It gives additional powers to the Charity Commission to suspend or remove trustees from charities or to give specific directions for the running of a charity in order to protect it. The Act has also created a new way in which charities may organise themselves, in the form of Charitable Incorporated Organisations. Charitable Incorporated Organisations will differ from a ‘normal’ not-for-profit charity company, the usual model for which is the company which is limited by guarantee. The main advantage of the Charitable Incorporated Organisation is that it avoids the ‘double regulation’ which other forms of charitable company suffer because they are regulated by both the Charity Commission and Companies House. It is worth pointing out that one effect of the Companies Act, which received Royal Assent on the same day, is to make the administration of small companies less burdensome.

The legislation follows the recent introduction of Community Interest Companies, which are in essence normal limited companies which are set up to pursue socially beneficial ends rather than profits. Community Interest Companies are governed by company law. They are not, however, charities. The advantages of the Community Interest Companies form over a charitable form are that it can pay its directors without having a constitution which specifically allows payment, or the consent of the Charity Commission, and that it can obtain outside equity investment. This allows Community Interest Companies to seek external investment, which can aid growth. However, the amount of profit CICs are allowed to distribute is limited and they are not able to take advantage of the very beneficial regime of tax reliefs which apply to charities.

The Charitable Incorporated Organisation has several advantages for charities, the main ones of which are that the trustees will have limited liability and that the trustees and members can be the same people. This is likely to make it significantly easier to find trustees with professional skills.

It is relatively straightforward to convert an unincorporated charity or charity which is a company limited by guarantee into a Charitable Incorporated Organisation and, for many charities, this may well be a sensible thing to do.