The Trustees of the Warwickshire Federation of Women’s Institutes would like to change the charitable status of the Federation from Unincorporated to that of a Charitable Incorporated Organisation (CIO)
This process includes a consultation with members of all Women’s Institutes in the Federation.
We would be grateful if you could discuss this proposal with your members
(full details below) and then instruct your delegate for the Annual Federation Meeting on 18th March 2019 on your vote on this matter.
With all good wishes
THE ADVANTAGES AND DISADVANTAGES OF INCORPORATION (advice from NFWI.)
If an unincorporated County/Island federation decides to incorporate, this will involve setting up a completely new company limited by guarantee or a charitable incorporated organisation (‘CIO’), registering it with the Charity Commission, and then transferring the assets and liabilities of the unincorporated federation to the new company.
Advantages of incorporation
The main advantages of incorporation are:
1. An unincorporated federation is not recognised in law as a legal entity. It cannot enter into legal agreements (contracts of employment, leases etc.). Agreements are entered into by the members of the committee and they, or the individuals who sign the agreements, may be held personally liable, although they should have a right to be reimbursed from the assets of the federation (see below). An incorporated federation can enter into legal agreements in its own right. It is the federation, not the individuals, who will be liable.
2. An unincorporated federation cannot hold the legal title to property in its own right, because it is not a legal entity. The property must be held in the names of holding trustees, a nominee or the Official Custodian for Charities, on behalf of the federation. Property of an incorporated federation, on the other hand, can be held directly in the name of the federation.
3. If an unincorporated federation is sued, the legal action must be brought against some or all of the members of the committee. If an incorporated federation is sued, the legal action is generally brought against the federation itself. Similarly, if an unincorporated federation brings a legal action against another party, the action will have to be brought by one or more of the trustees, but an incorporated federation can take legal action in its own name.
4. If an unincorporated federation becomes insolvent (i.e. cannot meet its financial obligations), the trustees can be held personally liable for the debts. In an incorporated federation, the trustees are in most cases protected from personal liability. However, incorporation does not provide blanket protection against personal liability. Even with incorporation, individual trustees could be held personally liable if they:
a) Allow the federation to act outside its objects set out in the constitution;
b) Cause a loss to the federation by not taking or following proper advice on legal or financial matters;
c) Fail to comply with the rules in certain areas, such as health and safety, discrimination and company law (particularly the requirements to file documents at Companies House), which can impose personal liability on company directors or the trustees of CIOs;
d) Allow the federation to continue operating when they knew or ought to have known that the insolvent liquidation of the federation was inevitable.
e) Fail to act with due diligence in all matters relating to the federation
Disadvantages of incorporation. The main disadvantages of incorporation are:
1. Although the NFWI provides model Articles of Association (for a company) and a model Constitution (for a CIO) for a federation, inevitably this is a more complex document than the constitution of an unincorporated federation.
2. By using the model Federation Articles, the process of incorporation and registering the new incorporated federation with the Charity Commission has been streamlined. Nevertheless, the process will involve a certain amount of upheaval in taking the decisions necessary to incorporate and the paperwork needed to implement the decision. The Federation will have a new charity number and will need to get new business stationery, etc to reflect its incorporated status. Updating bank accounts can cause significant administrative inconvenience.
3. An unincorporated federation must file an annual return, annual accounts and a Trustees’ report with the Charity Commission. A federation which is incorporated as a company will, in addition, need to file a different annual return but similar annual accounts and Trustees’ report with Companies House. There is also a certain amount of paperwork involved in keeping the company registers up to date. There is less burden in running a CIO, as it is only registered with the Charity Commission and does not need to file documents with Companies House.
A CIO is a relatively new corporate entity which has become available since 2013. The NFWI is introducing a model constitution to allow county federations which would like to convert to CIO status to do so instead of becoming a company limited by guarantee.
Advantages of incorporating a county federation as a CIO
1. Unlike companies, which are registered with Companies House and the Charity Commission, a CIO only has a single regulator – the Charity Commission. The CIO is the only bespoke legal vehicle for charities. It has been designed with charities in mind unlike the other legal formats which are adapted for charities.
2. Like companies, CIOs have limited liability so that the trustees are not generally liable for the debts or liabilities of the charity, and legal personality, so they can enter into legal agreements, hold property, and be party to legal proceedings in their own name.
3. Converting to a CIO is a slightly simpler process than converting to a CLG, as the CIO only needs to be registered with the Charity Commission and not with Companies House.
4. The CIO then just has to comply with the Charities Acts but not with company law. As a result, the NFWI model constitution for county federations which are CIOs provides a simpler framework for members’ meetings and decision-making than applies in the Articles of Association for a charitable company. For example, it is not necessary to provide for proxies at members’ meetings, which some county federations which are companies find burdensome to administer.
5. A CIO’s register of members is generally not open to the public (except in very limited circumstances relating to insolvency). This provides a slightly greater level of privacy than for charitable companies, although it is unlikely to have a significant impact on a Federation.
6. CIOs with an income under £250,000 can opt to prepare their accounts on a receipts and payments basis, which is simpler than the accruals basis used for company accounts.
Disadvantages of the CIO structure
1. The CIO is a relatively new and untested legal structure. To the extent that there are queries about how some provisions will work in practice, there is no established legal framework to fall back on as there is for companies.
2. There is no register of charges for CIOs and this may make banks less willing to provide some types of finance to CIOs, such as an overdraft facility. However, this will probably not apply where a CIO borrows to fund the purchase of a property, as the lender can register a charge at the Land Registry.
Frequently Asked Questions
1. Why are we (you) doing this?
We (the Board of Trustees) are doing this to put the Warwickshire Federation on a safer legal and financial footing. Looking to the future, an organisation as big as ours need to have a stable and secure position from which to conduct our business. It will protect us as Trustees now and any future Trustees. We cannot expect future members to volunteer their services and time to serve as Trustees without making this as easy and as safe as possible.
2. What will happen if we don’t do it?
In a word, nothing, but in future years, members who may wish to serve as Trustees, may be unwilling to do so if we fail to take action now to ensure the stability and legal status of this Federation.
3. How will it affect us as a Federation?
It will mean some upheaval for the Board of Trustees and office staff as we convert to a Charitable Incorporated Organisation, but once that is done we will be able to look to the future, knowing that we are now a legal entity, with all the benefits that entails and that any financial burden will be relieved from us as individuals should the very worst happen.
4. How will it affect us as an Institute?
It won’t. There will be no affect at all on the running of the Institutes. They will not have to change anything or take any action whatsoever. It will all happen at Federation level.
5. How will it affect me as a committee member?
It won’t. Other than any discussion you may choose to have, you will not be expected to do anything at all on your committees.
6. How will it affect me as a member?
It won’t. The day to day running of your individual Institutes will continue as it has always done. You may not even notice a difference at Council Meetings. How we run the Federation won’t really alter at all, the only thing that changes is our legal status.
7. What do we need to do?
All we are asking you to do is to support us in this, as members, and approve the new Constitution at our Annual Meeting on 18th March 2019. This is the Federation Constitution, not the Institute one. Your Constitution will remain the same.
8. How much will it cost?
We have had to engage the services of a solicitor who is qualified and familiar with Company and Charity Law. That, plus the extra costs of administration should be in the region of £3,000. We have budgeted for this in our annual budget.
9. Who will pay for this?
The Federation will pay for this. We will not be making any charge to Institutes.
Thank you for taking the time to consider this.