Essential Trustee: January 2018 – Answering your questions

We answer more of your questions: “What are the main options for collaborative working?” in light of the Duke of Cambridge’s comments at the Charity Commission Annual Public Meeting on 23 January, and “What are the pros and cons of a charitable company converting to become a CIO?”, which has been possible since 1 January.

What are the main options for collaborative working?

Answer: At the Charity Commission’s Annual Public Meeting on 23 January, The Duke of Cambridge delivered the keynote speech. He spoke about the vital role of charities in society and the importance of collaboration in the sector. Although this has been a theme within the sector for many years, it has, once again, been thrown into the spotlight.

There are a wide range of options for collaborative working, and it need not involve lengthy legal documents. Many charities work together informally for mutual benefit. However, if you are engaging in any sort of collaboration involving shared staff or resources, or which might expose your charity to risk, we would always recommend entering into a contractual arrangement to make it clear who is responsible for what in the collaboration.

More formal types of collaboration include joint venture projects, either contractual or by setting up a joint venture vehicle, with each charity holding an equal number of shares and contributing to the project as agreed in a shareholders’ agreement. These sorts of collaborations tend to work well when bidding jointly for public service contracts.

At the other end of the scale from informal collaboration is a full-blown merger. The merger of two or more charities is a significant decision and involves a lot of time and money to achieve. So, it should not be undertaken lightly. However, it is, in some cases, absolutely the right decision and the best way to achieve your aims. To read more about the importance of undertaking a balanced approach when considering merger, see Liz Brownsell’s article on this topic in Charities Management Magazine.

If you are considering any sort of collaborative venture and would like to discuss how we can help, please get in touch with Liz Brownsell or another member of the Charities and Social Enterprise Team.

What are the pros and cons of a charitable company converting to become a CIO?

Answer: CIOs have proved to be a popular vehicle for new charity formations since their introduction following the Charities Act 2011. Over 50 per cent of new charity registrations in the last financial year were CIOs. They offer corporate status with the Charity Commission as a single regulator and are subject to charity law. In contrast, charities that are companies limited by guarantee, need to comply with two separate regulatory regimes (Registrar of Companies and the Charity Commission) and both company law and charity law.

The Charity Commission does not operate a public register of charges over the property or undertaking of CIOs. If a charity has unsatisfied registered charges, it may not be appropriate for it to convert, unless these can be satisfied before the application is made. In addition, the Government has warned trustees to take advice on the impact of conversion on any pension scheme operated by the charity, as well as on any TUPE issues arising from the conversion (although these are likely to be limited as the same entity remains the employer).

Funding could also be affected if the corporate body has entered into any secured or unsecured loans, as conversion could trigger a breach of covenant under the loan documentation. If your charity has any outstanding unsecured loans, it is important to take advice and discuss the proposed conversion with the lender before proceeding.

If you are a charitable company and are interested in conversion to become a CIO, we offer a fixed fee service for this. Please contact a member of the Charities Team for further information.

This article is from the January 2018 issue of Essential Trustee, our newsletter for charity trustees and senior management.. To download the latest issue, please visit the newsletter section of our website. Law covered as at January 2018.

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