Proposal to become a Charitable Incorporated Organisation
Your Directors & Trustees have agreed to propose to Members that we should merge back together our charity and our limited company into a CIO. Would you like to know more information? Do you have views on the best governance arrangements?
We ask members to vote on this on Tuesday 9 August - you should already have received the notice of agenda.
So the Members decided to create a new CIO and merge under in in the SGM of 9 August 2022.
A more formal announcement will be out in due cource.
The committee are now implementing your decision - we'll be back to you with progress.
[normally means Frequently Asked Questions, but in the case of a bonfire constitutional change probably means Fuck-all-asked Any Questions at all! We'll see]
What is a CIO?
A Charitable Incorporated Organisation (CIO) is a corporate form of business designed for (and only available to) charitable organisations in England and Wales. CIO status is conferred by the Charity Commission for England and Wales on application by a charity, whether new or existing.
CIOs were not a possible option when our society was legally formed in 1995. The desire for legal limited limitations to liability lead to the creation of HBBS Ltd and Renegade Pyrotechnic in 2007, with our charity name changing from Hastings Borough Bonfire Society to Hastings Bonfire Trust. The CIO status only became a possible option to charities in England and Wales on 4 March 2013, with The Charities Act 2011.
What are the advantages? Why would we want to be a CIO?
The main benefits of the CIO form are that the charity has legal personality (the ability to enter contracts, sue and be sued, and to hold property in its own name – rather than in the name of its trustees), and its members have limited liability (their liability in the event the charity becomes insolvent is limited or nil).
Historically these benefits were only available to limited companies, and many charities chose to incorporate as charitable companies limited by guarantee. However, this requires registration and filings with both Companies House and the Charity Commission for England and Wales, each of which has its own regulations and requirements. In contrast a CIO only needs to register and file accounts and returns with the Charity Commission, being bound by the Charities Act (and not the Companies Act). This aims to reduce bureaucracy for the charity.
Uniquely among limited liability corporations in the UK, smaller CIOs in England and Wales can opt to file receipts and payments accounts, rather than the accruals accounts usually required.
Are there disadvantages?
Mortgages and a Register of lenders charges
One disadvantage of the CIO form for larger charities is that, unlike for charitable companies, there is no public register of lenders' charges over the corporation's assets, and this can make it harder to arrange finance, e.g. for a mortgage for land. [I don't personally think we will ever want to borrow money for bonfire - are there other views, e.g. for land mortgages? Today HBT cannot get finance/mortgages, but HBBS Ltd theoretically could.]
Once a CIO...
Almost any existing charity, including charitable companies, can convert to a CIO. Once a CIO, there is currently no means of converting to any other legal form. [So I think we would need to dissolve and transfer our assets to a new charity with similar aims.]
Can be closed by the Charity Commission
Also, the Charity Commission have the right to summarily close a CIO (and perhaps any charity), which could be a risk, but presumably only if trustees start taking money from it (some famous cases recently), and then the situation is unclear, but I'd guess the Members could disolve and transfer funds to a new CIO/Charity and appoint new Trustees.
Commercial activities that don't support our charitable purposes
Not having an entirely separate Ltd Co could be a limitation if we want to do commercial activities that would not support our core purposes (of offering a beach bonfire, procession, effigy and fireworks, and promoting the Susses bonfire tradition). [But why would we want to? And if we did, we could create a new Ltd Co for that purpose, either separate ]rom the society or as a subsidiary, as appropriate at the time, as we have done before]
Currently, as an incorporated charity, HBT does not normally need to send in full accounts. We must still report our charity’s total income and expenditure, even if you do not need to send a full annual return. This needs to be reported within 10 months of the end of our financial year. And we need to send a full annual return if either:
our charity’s income is more than £10,000
our charity is a charitable incorporated organisation
So this is a little extra admin for HBT (but then no admin for HBBS Ltd.) however Ashdown Hurrey already prepare the full accounts for HBT so we just need to file those instead of simply our total income and expenditure (and about 25 other questions about Trustees and Volunteers).
(Err, let me develop this list further. A large list of minor points could follow given time, but I suspect most would fall into the category of changes to governance, rather than disadvantages)
What are the key constitutional changes
1. The CIO template constitution says the Members appoint the Trustees, and then the Trustees appoint their own chair, treasurer and secretary from amongst their number (in line with the HBBS Ltd constitution, but unlike the HBT Constitution and unlike our current practice).
Can our bonfire society honestly be a charity?
Fair question, after all we mainly try to just burn things, and today we do most of our business through a limited company under the Companies Act.
The definition of valid charitable purposes is provided by the Charity Act 2011. In particular see Clauses 2-4. For us, most important are that both of the following points are true: -
3.1 Our primary charitable purpose is (f) 'The advancement of the culture and heritage' of the Sussex Bonfire tradition - where gov.uk even mentions 'the preservation of historical traditions, such as carnivals, ...' as counting, and even our proper torch making 'craftsmanship' is the envy of Sussex and, secondarily, through our teamwork and volunteering we also support (e) 'The advancement of citizenship or community development', to mention just a few of the things we do
4.1 We offer this for public benefit, primarily for the local community by offering a free torchlit procession, bonfire, firework display and effigy
Everything we do is for these purposes is 'charitable' for the Charity Commission and HMRC (including our fundraising through merchandising for instance). So these days at least, we could transact all our business through our current charity, but then we would not be incorporated like the limited company unless we move to a CIO
How do we get to become a CIO?
Firstly, Members discuss and approve move to a CIO, i.e. a Special General Meeting to vote on 3 motions:
a). HBT special resolution: Agreement for formation of a new CIO under the old name of Hastings Borough Bonfire Society but with the new ‘CIO-friendly constitution’
b) HBT special resolution: Dissolution of the HBT (charity), giving all its assets to the new CIO (on 1/1/23 subject to accountancy advise)
c) HBBS special resolution: Dissolution of HBBS Ltd, giving all its assets to the CIO
For this, a Notice will be issued to Members by Tuesday 19th July advising of the SGM on Tuesday 9th August.
What are the tax implications?
When we asked the Charity Commission if they were comfortable with a CIO owning a subsidiary that was a firework company they referred me to HMRC CC35 - their Guidance for Trustees on trading and tax: 'how charities may lawfully trade'. This document entirely supports our current practices through the CIO model as a combined entity, and in owning a limited company firework subsidiary. CC35 itself is 36 pages long; however please note Greg has an 8-page summary with annotations as relevant for our bonfire & pyro - see this summary of CC35 for the tax viewpoint.
Also see information from HMRC on tax that can be reclaimed: https://www.gov.uk/charities-and-tax
See more on tax benefits under 'advantages' above
What about Pyro? How will it affect them?
Well, not much at all really in practice.
So Renegade Pyrotechnics Limited, a wholly owned subsidiary of HBBS Limited today, and indeed part of the old-old-HBBS was always very much part of HBBS from the founding of the society (12 years before the Limited Company).
In governance terms, Renegade Pyrotechnics limited has its own constitution - their Memorandum and Articles of Association, They can operate as a separate legal entity with much commercial freedom.
HBBS Ltd has owns Renegade Pyrotechnics ltd, and that is not adversely impacted with the CIO, as the HBBS Ltd assets (including Renegade's shares) simply pass to the new HBBS CIO automatically at the . Pyro use their proceeds for our beach bonfire precessions, as far as they are able, minimising the amount of firework money needed from the society, so all proceeds from Pyro have aways been used for our primary bonfire charitable purposes anyway.
Pyro has the ability to make profits but its Director, Top Table and Team do not derive any income from it, and the profit is not taken in dividends by HBBS Ltd as it could be, but instead given to the Society as free (or highly subsidised) fireworks for our Society beach display, for the benefit of the general public, and in furtherance of the Sussex Bonfire Tradition and our other charitable Objects (both now and under the new CIO).
The material change with Renegade Pyrotechnics being brought into the CIO by the HBBS ltd merger is that any surpluses from Pyro activities would have to be used for the Society's charitable Objects. As they always have been anyway, and the intention is therefore that this is not thought to be a material change for Pyro. More restoring us to where we used to be from the 1995-2007 period, which could not happen then as a CIO was not at that time possible.
What guidance should the Trustees follow?
Here is helpful guidance from the Charity Commission
Background - Governance history of the society
So how did we get here? Our broader history can be found on the main website. However answering from a governance point of view, this PDF of the structure and the history of the society from 2018 has useful detail on this point.
What does your D&Ts committees want YOU to do now?
Read the notice for the SGM
and the draft governance document on the right-hand side - the new draft constitution:
Consider the two specific questions below and let us know your preferences
Turn up to vote on 9 August, or delegate your vote to a Proxy - we need a quorum to carry this
Finding your way round the CIO constitution
The most important section to read is section (3) on page 2 - our charitable Objects. We will live for these purposes. Are they accurately drafted?
The next most important section to read is arguably section (13) on pages 15-17 - appointment of trustees.
Draft new CIO Constitution
Headline Questions for Members
Frequency of Trustee appointments
So, how often do you think the Trustees should be reappointed?
Our current position is that all D&T roles last for one year and are therefore reappointed annually.
Are annual committee appointment what we want going forward? Some of us think we spend too much time in such admin matters with Members (though governance is actually important to us at a committee level).
The CIO model constitution suggests:
Trustees should be appointed for a period of 3 years [good if you think for a new committee member, year 1 is seeing the annual cycle for the first time, year two is staring to make a difference, and year three is deciding what your strategy would be for a second three-year term]
Retiring Trustees may then be reappointed for a further three-year term
For our bonfire society do we want to:
Continue to appoint all Trustees annually?
Give Trustees a three-year initial term - so one-third of Trustees retire each year, but may then be reappointed?
Our current draft constitution is based on (1) above to retain consistency with our current practice. The Charity Commission's model CIO constitution template has both (2). I am moderately confident that if we want (1) the Charity Commission are likely to allow us to do this, but do we really want it?
2. Appoint Top-Table individually?
Today, Members appoint the Chair, Treasurer and Secretary (though our charity constitution says the committee can also appoint the Secretary, and our Ltd Co constitution says the Committee appoint their own chair).
A normal modern constitution, including the model CIO template constitution, says that Members appoint Trustees, and Trustees appoint their own chair. However in our society, Members appoint the top-table individually. We assume this is what the Members want to retain.
Please share your views/suggestions/concerns: -
Or share your initial views in this informal poll: -