There is also a type of company which is formed for the purpose of carrying on business for the benefit of a community called a Community Interest Company (CIC). This is also known as a Social Enterprise Company. A CIC is not a charity, so it is not subject to charities regulation and this can provide benefits for organisations that seek to operate more as a business in their everyday interactions, although clearly the definitions of ‘benefit’ and ‘community’ need to be met.
When setting up a charity, there are several structures to choose from; the four main structures commonly used by charities are:
- unincorporated associations, and
- companies (limited by guarantee)
- Charitable Incorporated Organisation (CIO)
The main disadvantage with trusts and unincorporated associations are that they do not have a legal personality and cannot enter into contracts in their own name. Trustees or members may have personal liability.
The main disadvantage with Companies (limited by guarantee) is the requirement to submit returns and accounts to Companies House and Charity Commission.
Charitable Incorporated Organisation in our view are the better structure for many organisations serving the community for following reasons:
- a CIO is an incorporated entity with a separate legal personality from its trustees, which means that the CIO can enter into contracts in its own name
- the trustees of a CIO are generally protected from liability as opposed to the trustees of a trust or the members of an unincorporated association
- CIOs are not companies, so they only have to be registered with the Charity Commission (not Companies House) and are not subject to a dual regulatory regime for to company law and charity law
- the procedure for setting up a CIO is streamlined compared with the incorporation of a charitable company because the CIO is incorporated and registered as a charity by way of a single application to the Charity Commission.
Our Town and Parish Council team in Surrey will be able to advise you on suitable structures and the process needed for conversion from your existing arrangement.