How to choose a legal structure for your charity (in England and Wales)

“What is a CIO and how is it different to a normal charity?”

“What’s the difference between a CIO and a charitable company and how do I choose?”

“Is a CIO the same as a CIC?”

The headlines

If you’re planning to set up a charity and you start googling possible legal structures it’s very easy to get bamboozled. I’m going to make it simple for you- if you’re planning to deliver activity with people (or animals) then there are only 2 forms of charity you need to think about: Charitable Company and Charitable Incorporated Organisation (CIO).

If you have a massive load of money and plan to give out grants, if you were set up by Royal Charter, or if you have a big old mansion you want to set up a charitable trust for then that’s a whole separate shebang but I’m guessing none of those apply. And whilst a CIC (Community Interest Company) might do some things that seem charitable, it isn’t a charity- it’s a standard company with an extra bit to promise that it will also do things to benefit the community. I’ve got more info about setting up a CIC here. 

So although theoretically there are lots of different legal structures for charities, you only need to worry about 2 of them. Here’s the rundown on how to decide which works best for you:

5 differences between a Charitable Company and a CIO

1. Registering and Regulating

A Charitable Company does what it says on the tin. It’s a limited company AND a charity at the same time. That means it’s both registered with and regulated by Companies House (and UK company law) and the Charity Commission (and charity law). A Charitable Incorporated Organisation (CIO) is only registered with and regulated by the Charity Commission. A CIO is a newer form of charity and while some people still consider it the new kid on the block, the first CIOs were incorporated in 2013. This might seem like 5 minutes ago but they’ve been around for years. Some might say from a simpler time, before Kim Kardashian’s bum ‘broke the internet’, when twitter was still a place for discourse and before anyone had heard of COVID. 

The aim of creating the CIO structure was to simplify the process of registering and administrating a charity and so if you’re setting up a charity from scratch this is usually the one to go for. If you already run a limited company however, you’ll usually find converting to a charitable company is the way to go. Otherwise you have to go through the process of transferring all of the company’s assets, funding, staff etc to the new legal entity. (And as someone who’s had to manage that process in the past I can tell you it’s a massive palaver). 

1. Reporting for duty

As you may have guessed from the fact that a Charitable Company has two regulators, when it comes to reporting, this also has to be done twice. A CIO only reports to the Charity Commission whereas for a Charitable Company the annual return, accounts etc have to go to both Companies House and the Commission. Records also have to be kept up to date with both.

1. International recognition

I have heard on the grapevine that if you’re planning to work a lot internationally, a CIO is a less well known structure and some international contracts etc will expect you to have a company number. It’s not something I can give a specific example of but if your work is international it may be worth double checking with key partners whether that’s the case.

1. Loans

This is another quite specific one, but if you’re planning on borrowing money as your charity, lenders may prefer a Charitable Company, because as a registered company they have a “register of charges” which can be part of the loan security stuff. If this is relevant to your plans, chat to a finance person who can explain more about this before making your decision. 

1. Show me the money

If you’re running very small-scale charitable activities, you may be able to get away with being an unincorporated association. This isn’t a legal structure, more like a voluntary group or a community group. It’s obviously simpler to operate without all the reporting and regulation but it means the trustees are personally liable and contracts etc would need to be with individuals, rather than the organisation so the personal risks are higher. 

As a charity, once you hit the £5,000 mark, you have to register. A Charitable Company can’t register until it reaches the £5,000 threshold but if you want the security of a separate legal entity and some protection from liability (responsibility for risk) for the trustees, then as a CIO you can register at any time, regardless of income. 

What next?

The gov.uk website has lots of info on about the process of setting up a charity. Start here. 

If you’re still drowning in jargon, or not sure whether a charity or CIC is right for you, then I have training on setting up an organisation here. We’ll translate words like constitution, articles of association, incorporation and voting membership, give you a guide to the different structures and go through how to register once you’ve chosen.

If you want help with other aspects of running your organisation, join the squad and get a monthly dose of free support.