Community interest companies now able to convert into charitable incorporated organisations

1 November, 2018

A community interest company (CIC) is a limited liability company, designed Blue sign saying 'What's New'for social enterprises. A CIC has the specific aim of providing a benefit to a community and must use its income, assets and profits for the community it is formed to serve. This is known as the community interest test and a CIC will satisfy this test if it can show that a reasonable person might consider that its activities are being carried on for the benefit of the community.

 

As CICs cannot be charities, their objects do not have to be exclusively charitable and they are not subject to regulation by the Charity Commission. 

 

However, sometimes circumstances change and a CIC will want to become a charity usually to obtain the tax breaks that status enjoys but sometimes just to create a more commonly recognised platform for fundraising.

 

From 1 September 2018 a CIC has been able to convert into a charitable incorporated organisation (CIO).

 

The CIO is a relatively new charitable vehicle. It was first launched in January 2013 and is a corporate structure designed specifically and exclusively for charities.

 

Unlike a charitable company, CIOs only need register with the Charity Commission. They do not need to and, in fact, cannot apply to be registered with Companies House. However, in common with a charitable company, they benefit from limited liability.

 

CIOs are simple and cheap to set up. Unlike Companies House, the Charity Commission does not charge for registration or the filing of information, and ongoing the filing and accounting requirements of a CIO are less onerous than for Companies House.

 

The Charity Commission has recently published guidance on the procedure for CICs to convert to a CIO. 

 

The process is relatively simple involving just four steps:

  1. Prepare a conversion resolution;
  2. Adopt Charity Commission model CIO constitution;
  3. Prepare a resolution adopting the CIO constitution;
  4. Apply for charitable status (including with the application the conversion resolution, the CIO constitution, the resolution adopting the proposed constitution, and a completed Trustee Declaration form)

 

Key to this process is the application to be a charity and before embarking on this journey the CIC should consider carefully whether they meet the requirements for charitable status.

 

In order to be recognised as a charity, an organisation must be established for exclusively charitable purposes and be capable of benefiting the public at large (the public benefit test). This is a more restrictive test than the community benefit test described above although many CICs will meet these requirements. For more information on charitable purposes and public benefit, see the Charity Commission Guidance here.

 

Assuming the Charity Commission accepts the application to become a charity, they will then give Companies House what they need to confirm to the Regulator of Community Interest Companies that the CIC wishes to convert to a CIO. Companies House will then cancel the registration of the CIC and the Charity Commission will then register the CIO as a charity and let the trustees know that this has been done.

 

If you would like further advice on the differences between CIC and CIO status, please contact Clare Savory, a Senior Associate in our Private Client team.