• New charities which want to be incorporated rather than being unincorporated should choose charitable company if the organisation needs to be set up in a hurry. It takes a week or less to register a company at Companies House, or it can even be done as a same-day registration. The company can then immediately start operating — enter into contracts or leases, receive grants, hire staff, open a bank account — even though it is not yet registered with the Charity Commission. If there are delays with charity registration, it does not affect the existence of the organisation. A CIO, however, does not come into existence until it is registered with the Commission. The Commission is predicting that a decision about registering a CIO will normally be made within 40 working days if the organisation uses one of the Commission's model constitutions, uses the Commission's model wording for its objects, shows that its activities are or will be consistent with the objects, and shows that any private benefit is only incidental and is properly managed. Other applications will take longer. So there will be a period of two months or more while the people involved in setting up the organisation have agreed their CIO constitution, but cannot yet operate as a CIO. Similarly for existing unincorporated charities which want to incorporate, choose charitable company if it is important that the incorporation is done quickly.

• Charity registration. Choose CIO if it is a new charity with annual income under £5,000 and wants to register with the Charity Commission. CIOs have to register with the Commission regardless of income. The Commission will register other legal structures with income under £5,000 only in exceptional circumstances.



• Constitutional flexibility. Choose charitable company (or stick with it if the organisation already is one) if you want pretty much infinite flexibility in how the articles of association are worded. Choose CIO if you don't mind having to stick to one of the Charity Commission's model CIO constitutions unless there is good reason not to follow the model. On the other hand, being forced to stick to the model probably means there is less scope in a CIO constitution for the errors or omissions organisations sometimes make when drafting their own governing document.



• Members' guarantee. Choose CIO if you don't want to require members to guarantee to contribute a specified amount to the organisation's winding up costs if it is wound up insolvent. A CIO set up by a new or unincorporated charity can choose whether to have a guarantee (though I can't think of any reason why it would want to have a guarantee if it doesn't have to). Charitable companies must always have a members' guarantee (usually £1 or £10). When a charitable company converts to a CIO, the guarantee is extinguished (ceases to exist) if it is £10 or less. If it is more than £10, the CIO must include a guarantee of not less than it was in the company.



• Public register of members. Choose CIO if you don't want the register of members to have to be open to the public. The register of a company's members must be open to the public at the company's registered office or an alternative inspection location, although there are some provisions to prevent access. A CIO's register of members does not have to be available to the public, though it does have to be available to the Charity Commission and to members of the CIO who need to see it in order to carry out their duties as members.



• Public information about trustees. No significant difference between charitable company and CIO: CIO trustees' names, former names and service addresses (which do not need to be residential addresses) will be available to the public, in the same way that company directors' details are available. Their residential addresses must be provided to the Charity Commission, in the same way that the company directors' residential addresses must be provided to Companies House, but these are not made public.



• Conflict of interest duties of trustees. Choose CIO if you want the governing body members (trustees) to be subject only to their charity law duties in relation to conflict of interest, acting in the interests of the charity etc. In a charitable company they are subject to both charity law and company law duties, which do not always fit comfortably together and can cause confusion (even I'm not clear how they fit together sometimes).



• Duty of members' to act in the charity's interest. Choose CIO if you want to make clear that CIO members (not just the trustees) must exercise their powers as members in a way which they believe in good faith would be most likely to further the purposes of the CIO. This might be a helpful requirement when and if warring membership factions need reminding that their duty is to the CIO as a whole. Choose charitable company if you do not want members to be legally obliged to act in the interests of the charity. (Trustees must always act in the charity's interest.)



• AGM. Choose CIO if you don't mind being obliged to hold an AGM every year. Choose charitable company if you do not want to be required to hold an AGM unless this is included in the articles (and if it is OK that the articles could subsequently be amended to remove the requirement).



• Requiring a general meeting to be called. Choose charitable company if you want the members to have a statutory right under the Companies Act 2006 to require a general meeting (a meeting of the members) to be held. Choose CIO if you do not want members to have this right, or want them to have it only if it is included in the constitution (and if it is OK that the constitution could subsequently be amended to remove the right).



• Right to appoint a proxy. Choose charitable company if you want the members to have a statutory right under the Companies Act 2006 to appoint a proxy to attend, speak and vote on their behalf at general meetings. Choose CIO if you do not want members to have the right to appoint a proxy, or want them to have it only if it is included in the constitution (and if it is OK that the constitution could subsequently be amended to remove the right).



• Right to require a poll. Choose charitable company if you want the members to have a statutory right under the Companies Act 2006 to require a poll (a counted vote) to be taken at a general meeting. Choose CIO if you do not want members to have this right, or want them to have it only if it is included in the constitution (and if it is OK that the constitution could subsequently be amended to remove the right).



• Right to remove trustees. Choose charitable company if you want the members to have a statutory right under the Companies Act 2006 to remove company directors (trustees). Choose CIO if you do not want members to have this right, or want them to have it only if it is included in the constitution (and if it is OK that the constitution could subsequently be amended to remove the right).



• Chair's casting vote. Choose CIO if you want the person chairing a general meeting to have a second or casting vote in case of an equality of votes, if this is included in the CIO's constitution. Under the Companies Act 2006, a company formed after 1 October 2007 cannot include this provision in its articles, and a company formed before then cannot amend its articles to include it.



• Constitutional amendments. Under the Companies Act 2006, amendments to a company's articles require a special resolution, which requires 75% of the votes cast at a general meeting, or a written resolution approved by 75% of the total membership of the company. Under the Charities Act 2006, amendments to a CIO's constitution require 75% of the votes cast at a general meeting, or a written resolution approved by 100% of the total membership of the CIO. Choose charitable company if amendments might be made by written resolution rather than at a general meeting, because unless a CIO's membership is very small, it is likely to be virtually impossible to get a written resolution approved by every single member of the CIO.



• Effective date of amendments. Choose charitable company if you want amendments to the articles to take effect from the end of the general meeting at which they are passed, or as soon as they are passed by written resolution (apart from an amendment to the objects, which takes effect only when it is registered at Companies House — which takes only a few days). Amendments to a CIO's constitution do not take effect until they are registered with the Charity Commission, which could be significant if, for example, amendments have been made to facilitate a merger, but there is no way of knowing how long it might take for the Commission to register the changes. Both charitable companies and CIOs need prior written consent for some amendments, but even where consent has been obtained, a CIO's amendments do not take effect until they are registered. And the Commission can in some circumstances refuse to register an amendment, even if it would not have required their prior consent.



• Using property as security for borrowing. Take legal advice if the charity is likely to own property and other significant assets, and will or may use the property as security for borrowing (such as a mortgage, or a floating charge on other assets). Charitable companies have a statutory duty to maintain a register of charges on their assets, and to register such charges with Companies House where the information is publicly available to potential future lenders and the public in general. CIOs will not have to keep a register of charges or send details to the Charity Commission. Charges on land are likely to be registered at the Land Registry so will be available there, but there is unlikely o be any provision for a floating charge on the assets of a CIO (although even for charitable companies, floating charges are very rare).
  
  Some commentators believe the lack of a register held by the Charity Commission could make it more difficult for a CIO to borrow using the charity's property as security. But at the moment there are conflicting views about this, as many unincorporated charities have mortgages on property even through the properties are not registered with Companies House. An organisation for which using property as security for borrowing is or might be an issue, and which is considering going for CIO status, should take advice before doing so.



• Local authority involvement. Take advice if the organisation is being set up by one or more local authorities or a local authority/ies will have considerable control over it (for example having power to appoint or remove a majority of trustees); or if people "associated with a local authority", as defined under part 5 of the Local Government and Housing Act 1989, control 20% or more of the total membership voting rights, or make up 20% or more of the trustees or hold more than 20% of trustees' voting rights and the organisation has a "business relationship" with the local authority/ies (which could mean, for example, the organisation getting more than half its income from a local authority/ies, or occupying local authority premises at less than market rent). In these situations a company will be defined under the LGHA 1989 as a local authority controlled or influenced company, and will be subject to certain restrictions (called propriety controls). CIOs will not be subject to these restrictions.
  
  However part 12 of the Local Government and Public Involvement in Health Act 2007 will, if it is ever implemented, replace the LGHA restrictions and allow propriety controls to be extended to any organisation whose financial information has to be included in a local authority's statement of accounts. This could include unincorporated organisations and CIOs.
  
  Further information about this is in s.11.4.3 of The Russell-Cooke Voluntary Sector Legal Handbook. The Department for Communities and Local Government might have information, but I can’t find it on their website.



• Winding up. For solvent CIOs, the winding up and dissolution provisions are not yet definite, so can't yet be compared with those for companies. For insolvent CIOs, it is likely that winding up will be the same as for insolvent companies under the provisions of the Insolvency Act, but this is also not yet definite.

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SCOTTISH CHARITABLE INCORPORATED ORGANISATION