Posted: 26th April 2016

Why incorporate

  • To provide limited liability to the trustees and members of the charity
  • To enable the charity to do things in cannot as an unincorporated charity

Unincorporated charities

  • These are represented by groups of people acting together who do not form a separate legal body or corporation. They can operate by way of a trust or association
  • A trust is an arrangement whereby two or more people “declare” they own certain property on trust for charitable purposes. e.g. trust deed

Unincorporated structure

When is an unincorporated structure suitable?

  • This is a structure that can be well suited to charities where membership participation is important
  • It is unsuitable for risker or large scale activities or significant contractual activities

Form of limited company

  • Company limited by guarantee
  • Company limited by shares

The share option suggests shareholders and dividends and is therefore not considered as appropriate

Considering incorporation

When should a charity consider incorporation?

  • When it is quite large
  • When it has employees
  • Enters into contractual agreements
  • Enters into commercial agreement
  • Buys freehold / leasehold property

Personal liability and a limited company

Directors are officers of the company and are not personally liable – subject to:-

  • Acting in breach of trust or duty to the company
  • Where responsible for fraudulent or wrongful trading by the company

Members’ liabilities are restricted to the level of the guarantees

The process

Form a steering group

  • Take advice, review current rules and consult key external stakeholders
  • Speak to the charity commission and get their permission along with any other regulators
  • Draw up the new model rules and agree any changes to the way the current charity is run. (Objects, voting etc)
  • Get approval for rules from the members Inform other stakeholders of the plan i.e. staff, unions, partners etc.
  • Have the formal meeting to ratify the decision
  • Form a limited company with Companies House normally with limited number of directors
  • Adopt appropriate Memorandum and Articles of Association for a charitable company
  • Register the company as a new charity with the Charity Commission
  • Agree a date for the formal transfer
  • On this date transfer contacts and assets to new legal entity
  • Leave cash behind to settle old liabilities

The practical steps

  • Identify all assets and liabilities of the unincorporated charity
  • Identify any on going contracts that need to be transferred to the new company
  • Identify any freehold or leasehold interest that need to be transferred
  • Draw up a list of service providers, statutory bodies and other partners needing to be informed
  • Update headed paper, official notices and publications
  • Charities are exempt from using the word “limited” after their name
  • Open a new bank account
  • Register a new PAYE scheme (and possibly VAT) and transfer staff
  • Advise insurers
  • Advise pension scheme providers
  • Advise all funders and obtain their approval
  • Inform donors & HMRC (Gift aid)


  • A vesting declaration
  • A transfer agreement
  • A member’s resolution
  • By way of a gift

Care when transferring the assets

Check your governing document for any dissolution clause

  • Is there a named charity to receive the funds in the event of a dissolution
  • Look for all dissolution clauses

Identify any endowments

Liabilities cannot be transferred

The assets will need to be transferred at fair values

Issues, risks and pitfalls

  • Defined pension scheme – ensure no pension liability crystallises
  • Legacies received in name of old charity - need to make an entry in the register of mergers
  • The ownership of a trading subsidiary can be transferred to the new charity company

The accounting

  • Although merger accounting may be possible you normally will show a gift/grant to the new organisation
  • This is then shown as income in the new company


  • 1 st CIO was Lara Jones Charitable Foundation in January 2013.
  • So far there have been about 2,500 CIO’s formed.
  • Take up seems better than CIC’s.

If you would like any additional information please contact Harri Lloyd Davies, Charity Partner at Bevan Buckland 

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Bevan & Buckland Chartered Accountants, its partners, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.