Spotlight

After much anticipation, the Charity Commission has published

the first part of its guidance on the Charitable Incorporated

Organisation (“CIO”) and, with it, two model constitutions.

However, the guidance has been released in somewhat of a

vacuum, due to the Regulations (which will contain the fine

detail about CIOs) not yet being finalised.

We understand that the Regulations will go before Parliament

prior to summer recess. The documents which have been

released may be subject to change once Parliament has agreed

the Regulations, although it is expected that any changes would

be minor.

We anticipate further publications from the Office for Civil

Society and the Commission when further information is

available.

Why are CIOs seen as necessary?By way of reminder, charities can be either unincorporated or

incorporated.

u Unincorporated charities mainly take the form of a trust or

an unincorporated association. The main problem with an

unincorporated charity is that its trustees could potentially

face personal liability in the event that something goes wrong.

u Incorporated charities are usually established as companies

limited by guarantee. Such charities benefit from a “corporate

veil” which means that, except in very limited circumstances

(e.g. criminal behaviour), the trustees (who are directors under

company law) do not face personal liability. However, there are

also certain drawbacks, the main of which are:

- dual regulation (with both the Commission and Companies

House);

- two-tier member and trustee/director structure, which is

not always relevant and/or clear and can lead to confusion

regarding who duties are owed to (whether to beneficiaries

or to members).

The CIO was conceived to offer the benefits of incorporation

but without some of the drawbacks currently associated with

companies limited by guarantee; importantly, CIOs are required

only to report to the Commission (not to Companies House).

Who might consider a CIO and what is the process?

The Charities Act 2006 made clear that CIOs would be available

to both new charities and also to existing charities wishing to

change their existing form.

A CIO only comes into existence upon registration with

the Commission and so planning will need to take the

Commission’s turnaround time into account. There is no

minimum income requirement for registration of a CIO and

CIOs are not available to exempt charities.

u New charities: Applications are made to the Commission (who

may refuse an application on certain grounds).

CIOs: nearly here…?Working with the Not-for-Profit Sector Spring 2011

CONTENTS1-2 CIOs: nearly here…?

3 What’s in a Name? - It Could be Your Reputation and Your Business

4 Pension Credits - Just Desserts for Religious Communities?

4 Client Focus

5 Stone King Digest Conference Dates

s

Stone King LLP13 Queen Square Bath BA1 2HJ Tel. 01225 337599 Fax. 01225 335437

16 St John’s Lane London EC1M 4BS Tel. 020 7796 1007 Fax. 020 7796 1017

Wellington House East Road Cambridge CB1 1BH Tel. 01223 451070 Fax. 01223 451100

New Hall Market Place Melksham Wiltshire SN12 6EX Tel. 01225 337599 Fax. 01225 335437

www.stoneking.co.uk email: charity@stoneking.co.uk © Stone King LLP 2011

u Existing incorporated charitable companies may, subject to the

Commission’s right of refusal on certain grounds and to certain

constitutional requirements for the proposed CIO, “convert”

into CIOs. The legal entity will remain the same and so will

be unlikely to trigger a legal “transfer”. It is not currently clear

how this will work for existing Industrial & Provident Societies

(nor, although not charitable, for existing Community Interest

Companies).

u Existing unincorporated charities may “transfer” their assets

into a new CIO; this will be a new legal entity and so will trigger

a legal “transfer”, including a transfer of staff, if relevant. A few

further details regarding the transfer from unincorporated

charities are discussed below.

What more does the new guidance tell us?

The guidance summarises some information which we already

knew, including what CIOs are, the rules that CIOs will be

subject to (although note that these are the Regulations which

are yet to be finalised) and a summary of how registration and

reporting will work.

The guidance also provides some new information. In particular,

the guidance states there is now no provision for a CIO or the

Commission to keep a register of charges over the CIO’s property.

This may reduce the desirability of the CIO for larger charities,

particularly those with property interests who may find funders

reluctant to lend, owing to the perceived loss of protection.

In light of this, the Commission considers that the CIO will be

most suitable for small to medium-sized organisations and in

particular those which employ staff or enter into contracts.

The guidance also confirms that CIOs will produce accounts

under charity law and so CIOs with a gross annual income of

£250,000 or less may prepare receipts and payments accounts,

but CIOs whose income is greater than £250,000 must prepare

accruals accounts.

The guidance states that statutory provisions will assist the

transfer process from an existing unincorporated charity

which has property which is permanently endowed (i.e. subject

to certain restrictions preventing it being spent as income).

There will be an ability for trustees of such charities to make

a vesting declaration which will: (i) transfer all property not

subject to such restrictions to the CIO, (ii) vest the legal title

in any permanently endowed property into the CIO, subject to

existing trusts, (iii) appoint the CIO as trustee of such property,

and (iv) treat the CIO and the underlying trust as one charity for

registration and accounting purposes (like a uniting direction).

What about the constitutions?

The Commission has published two model constitutions:

u the foundation model for charities whose only voting members

will be the charity trustees; and

u the association model for charities that will have a wider

membership, including voting members other than the

trustees.

The Commission has indicated that a CIO must base its

constitution on one of the models but CIOs may, subject to

obtaining the relevant consent of members, change from one

model to the other once established.

How will CIOs be brought in?

The guidance confirms that implementation will be staggered.

We understand that implementation will be carried out as

follows:

u new CIO applications;

u transfers from existing unincorporated charities, probably

phased by income;

u conversions of incorporated charities.

It is expected that the Commission will accept new CIO

applications shortly, but existing charities are unlikely to be able

to transfer to CIOs for another year.

We will publish updates on our website as and when we know

more.

Hannah Kubie

s

CIOs: nearly here…? - continued

What’s in a Name? - It could be your reputation and businessThe reputation of a charity (whether built up by providing

services to the homeless or running a school), or the reputation

of its trading company and any associated brands, is hard won

and easily tarnished. A name can come to be a guarantee of

quality and it is sensible to protect it from harmful use by other

persons, though it may be appropriate to allow others to use

it as long as they do so properly and are restrained from doing

things which have an adverse effect.

Unlike original works, in respect of which copyright arises

automatically, and confidential information, which is largely

protected by contractual arrangements, protection in respect

of a name (and any accompanying logo) is achieved by

registering a trade mark with the Intellectual Property Office.

Although a trade mark may arise in the UK as a matter of fact

without registration, the ability to assert rights, and not find

competing rights overriding them, is very much stronger once

registration has been obtained.

Distinctiveness and not being too similar to another trade

mark or other protected right lie at the heart of registrability,

so KODAK would have had no problem when they originally

registered. On the other hand merely descriptive marks, such

as TREAT, cannot be registered. Place names are capable of

registration as trademarks but that is counterbalanced by

the principle that free designation of geographical origin is

commercially important. So, MARS is allowed for a chocolate

bar, which has no other association with that planet, whereas

Hotel Monaco was rejected (in the USA) for hotels not situated

in that principality and having no connection with it.

Registration will be in respect of classes (each dealing with

a different category of activity, for example Class 25 covers

clothing, footwear and headgear). When making an application

you will need to decide which classes are appropriate to cover

your activities in order to obtain appropriate protection. In the

UK consideration will be given to the extent of the association

between the place and the name of the entity and the degree

of familiarity attributed by the relevant persons. A good

example of what can be registered is DUCHY OF CORNWALL,

as done in connection with a wide range of products. Basically,

there has to be distinctiveness through use and an application

may well not be granted if the name has been changed in

recent years. If a logo is added the likelihood of an application

being successful is much higher but protection will only extend

to what has been registered as the trade mark.

If you would like more information on this topic, or to discuss

the registration of the name of your charity, trading subsidiary,

or other entity, and/or any logo, as a trade mark, please contact

Roy Butler (rab@stoneking.co.uk) or Caroline Leviss (crl@

stoneking.co.uk).

Roy Butler

“… protection in respect of a name (and any accompanying logo) is achieved by registering a trade mark with the Intellectual Property Office.”

Pension Credits - Just Desserts for Religious Communities?

Unlocking the arts for all young people

The Prince’s Foundation for Children & the Arts reaches

out to the many children who, through social or economic

disadvantages, are denied access to cultural venues and to

high-quality arts activity.

Take Tregolls School in Cornwall as an example. These

primary school children come from the Tregolls Estate,

an area that suffers from significant deprivation: typically

children from the estate have low self-esteem, low

confidence and start school with low attainment levels. By

enabling them to regularly visit The Royal Cornwall Museum,

Children & the Arts has introduced them to a world beyond

school and home. Although not far away, it has given these

children a completely new perspective, allowed them to

shine in areas where they used to lack confidence, and

taught them that cultural venues are welcoming, exciting

and accessible places to visit.

Since being established by

HRH The Prince of Wales

in 2006, Children & the

Arts has introduced over

100,000 disadvantaged

children to theatre, music,

art and dance. This year the charity is working in partnership

with over 40 arts organisations across the country and is

transforming the lives of children from over 250 schools.

We need to raise £1million each year to continue our work.

With no government funding, we rely on the generosity of

individuals, companies, trusts and foundations to fund our

programmes through grants, donations and bequests. To

find out more, visit www.childrenandarts.org.uk or join us

on twitter (@childrenandarts) and facebook (www.facebook.

com/childrenandarts).

Client Focus – The Prince’s Foundation for Children & the Arts

Is an elderly nun who has worked tirelessly all her life entitled to

a pension credit? The answer from three of the country’s most

senior judges in the Court of Appeal is “perhaps”.

The sister manages a nursing home and a playgroup owned by

her religious order but she does not receive a salary. Her basic

needs – housing and food – are met by her own community. As

she became increasingly frail, she made a claim for pension credit.

The Department of Work & Pensions refused to pay the pension

credit, relying on a regulation that excludes “members of

religious orders who are fully maintained by their order”. The

same regulation excludes prisoners.

Emma Haley, a solicitor with Stone King, brought a legal

challenge on behalf of the sister in the Court of Appeal. We

argued that the DWP were wrong to say the she was “fully

maintained” by her community because she generated the

funds for her own maintenance through her work in the nursing

home and playgroup. Thus, she was caught in a Catch 22

situation: elderly and increasingly frail, but unable to stop work.

The judges ruled that to allow the appeal would cause confusion

and uncertainty. However, Lord Justice Rimer felt that, should

the sister decide to stop work and the trustees of her order,

as a result, found themselves unable to maintain her, then a

new claim for pension credit might well succeed. The legal

challenge and judgment has been described as introducing a

more nuanced approach to interpretation of the regulation.

The rationale for the State declining to offer members of

religious orders pension credit seems to be that the religious

community would generally have sufficient funds, funded from

the salaries of their members and supplemented by the tax

reliefs available to charities or (in the case of non-charitable

contemplative communities) supplemented by concessionary

reliefs. Patently, if the religious order has run out of money to

look after its elderly and retired members, the latter should be

able to apply to the State for help.

We end this article with another imponderable question – does

an elderly nun ever really retire?

Emma Haley and Michael King

Rii Schroer

Stone King has recently enlarged its team in order to deal with

increasing calls on services throughout the public and voluntary

sectors.

In particular the firm has continued to see significant growth

in its services for the Education Sector especially in relation to

academies, and for charities of all sorts as they respond to the

economic downturn and new compliance issues such as the

Equality Act and the Bribery Act.

In addition to the recent arrival of Graham Burns (ex TPP Law) as

a Partner, new solicitors who have recently joined Stone King’s

Charity & Education team include:

Reema Mathur as a solicitor in the Charity team. After training

at City firm Clifford Chance and a period at Withers doing

banking law, Reema has opted for the Charity sector and joins

our charity team.

Kate Grimley Evans trained with Eversheds and on qualification

worked for Eversheds and Mills & Reeve in Cambridge. She

specialises in Education law and Education property work.

Rishi Mital as a solicitor in the Education team. Rishi qualified

as a solicitor with niche education firm Match solicitors 3 years

ago and has worked with them since, specialising in operational

issues for education clients.

Nicola Berry as a solicitor in the Education team. Nicola trained

at TPP Law and has acted as principal assistant to Graham Burns

who recently joined the firm.

Lydia Brookes as a solicitor in the Education team. Lydia trained

at Clifford Chance and qualified as a solicitor 4 years ago.

Stone King DigestCharity & Education Team Growth Continues

Conference DatesStone King has a full programme of seminars/workshops for 2011 which will include Charity, Education and Employment

Law Update Workshops. We are also often involved in joint events with third-party charity professionals from time to time.

Please contact Annette (01225 324413; e-mail ak@stoneking.co.uk) or Charlotte (01225 326746; e-mail cmef@stoneking.co.uk)

for further information or check Events on our website at: www.stoneking.co.uk

2011 18 May Catholic Charity Conference Church House Conference Centre, London

14 June Joint Seminar: “Charities Guide to The Holburne Museum, Sydney Place, Bath Maximising Your Assets”

Left to right: Reema Mathur, Kate Grimley Evans, Rishi Mital, Nicola Berry and Lydia Brookes.

Your Contacts

The Spotlight deals with some current legal topics. It should not be used as an alternative to specific legal advice on the individual circumstances of a particular problem. Stone King LLP - registered limited liability partnership no OC315280, registered office 13 Queen Square, Bath BA1 2HJ

Charity:Michael King PartnerJonathan Burchfield PartnerRobert Meakin PartnerAnn Phillips PartnerStephen Ravenscroft PartnerAlexandra Whittaker AssociateVicki Bowles Barrister at LawSarah Clune SolicitorHannah Kubie SolicitorTom Murdoch SolicitorDarren Hooker SolicitorReema Mathur SolicitorSophie Pughe ParalegalMyles Taaffe ParalegalCharity Legacy Team:Jonathan Burchfield PartnerRobert Meakin PartnerPaul Sutton PartnerMatthew Braithwaite AssociateChild Protection:Steven Greenwood Partner

Commercial Property:Hugh Pearce PartnerStephanie Howarth PartnerHugo Greer-Walker PartnerCatherine Sanderson Senior AssociateSally McFadden AssociateAndrew Small AssociateJoanna Burton AssociateTamsin Simmonds SolicitorSarah Lawson ParalegalKathryn Williams TraineeCorporate & Commercial:Roy Butler PartnerCaroline Leviss AssociateDispute Resolution:Paul Sutton PartnerAlice Wood SolicitorAntony Pidgeon Solicitor

Education:Roger Inman PartnerGraham Burns PartnerRichard Gold ConsultantMichael Brotherton Senior AssociateKate Grimley Evans SolicitorRishi Mital SolicitorNicola Berry SolicitorLydia Brookes SolicitorEmployment:Nick Watson PartnerPeter Woodhouse PartnerJean Boyle AssociateTamsin Wilkinson SolicitorVictoria Blake HR AdvisorAmy Gordon TraineeHousing:Geraldine Winkler Legal ExecutiveTrust and Taxation:Andrew Mortimer PartnerAlison Allen PartnerDavid Ainslie PartnerCharles Hayward Partner

Stone King LLP13 Queen Square Bath BA1 2HJ Tel. 01225 337599 Fax. 01225 335437

16 St John’s Lane London EC1M 4BS Tel. 020 7796 1007 Fax. 020 7796 1017

Wellington House East Road Cambridge CB1 1BH Tel. 01223 451070 Fax. 01223 451100

New Hall Market Place Melksham Wiltshire SN12 6EX Tel. 01225 337599 Fax. 01225 335437

www.stoneking.co.uk email: charity@stoneking.co.uk © Stone King LLP 2011