Converting a charitable company to a charitable incorporated organisation

23 January, 2018

Historically there have been two main types of legal structure available to charities and not-for profit organisations –  a charitable trust or a charitable company limited by guarantee.

 

A charitable company is a good choice for medium and larger charities that engage in activities involving a level of risk or complexity such as employing staff or entering into commercial contracts as the members have limited liability.

 

However, charitable companies must register with and are regulated by the Charity Commission and Companies House, and this dual registration can be burdensome.

 

A charitable trust is only usually appropriate for smaller charities where the administration of the charity is fairly simple, as trustees of a charitable trust have potentially unlimited liability for debts and other liabilities of the trust.

 

What is a charitable incorporated organisation (CIO)?

 

A CIO is a corporate structure designed specifically and exclusively for charities. Unlike charitable companies, they do not need to (and cannot) apply to be registered with Companies House. They simply register with the Charity Commission.

 

They were first introduced in January 2013 but until now any charitable companies wishing to convert to CIO status needed to deal with a relatively complicated procedure to undergo the change which involved creating a completely new legal vehicle and losing its existing charity number and name.

 

sign in a field

However, from 1 January 2018 charitable companies with a yearly income of under £12,500 have been able to take advantage of a new simplified  process to change to a CIO whereby the charity continues to exist but in a different form i.e. it becomes a CIO. This process will be available to all charities by August this year according to this timetable.

 

The simplified process is now included in the Charity Commission’s Guidance on changing your charity structure but in summary, the conversion process now involves completing the Charity Commission’s online application form and enclosing with this:

  • A copy of the Company’s resolution confirming the decision to convert to a CIO
  • A copy of the proposed constitution of the CIO (which should follow the Commission’s model)
  • A resolution adopting the proposed constitution of the CIO
  • A declaration that the charity trustees of the CIO are eligible to serve as charity trustees

 

Under the new rules:

  • The CIO will retain their existing charity number;
  • any legacy to the charitable company will be payable to the new CIO;
  • there will be limited TUPE implications;
  • new data consents not needed as there is no change in the legal status of the entity.

 

A Community Interest Company can also convert to a CIO but will have to amend its constitution to satisfy the criteria to be a charity. However, an Exempt Charity cannot be a CIO.

 

The government has commented that it expects 12,000 small charities to benefit from the new conversion process over the next 10 years and if you would like to discuss whether converting to CIO status is right for your charity, please contact Peter Scott.