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Thu, Feb 1st, 2018

Legal update: CIOs

This update comes from voluntary sector legal expert Sandy Adirondack (www.sandy-a.co.uk)

Charitable company conversion to charitable incorporated organisation (CIO)

Five years after the new charitable incorporated organisation (CIO) structure became available for unincorporated charities in England and Wales, it is finally!!! also available for charitable companies.

CIOs have all the advantages of incorporation, in particular protection from personal liability, in most situations, for trustees and members. But unlike charitable companies, which have to register with both Companies House and the Charity Commission, CIOs are registered only with the Charity Commission.  And unlike charitable companies which have to comply with both charity and company law, CIOs only have to comply with general charity law, the provisions of charity law which apply specifically to CIOs, and a very few specific company provisions which also apply to CIOs. These include the company law rules on publication of name and legal status, and new rules, which came into effect on 1 January 2018, on use of certain words in CIO names [see legal update 1802, which will follow in a couple of days].

The conversion process

Charitable companies and CIOs are both incorporated, so the process of changing from one to the other is relatively straightforward, involving passing the relevant resolutions, agreeing the CIO constitution, ensuring the rules on use of certain words in CIO names are met, and making an online application to the Commission for conversion. The CIO will be able to keep the same charity number that the charitable company had, and probably also the same bank accounts. Assets, contracts etc do not have to be transferred from the company to the CIO, as they do when an unincorporated charity incorporates as a CIO or charitable company. The procedures are set out in the Charity Commission’s “Change your charity’s structure” and summary of legislative changes affecting CIOs [see Resources, below].

Because of the Charity Commission’s limited resources, there is a phased implementation timetable for charitable companies wishing to convert to CIO, starting with the smallest (with annual income under £12,500) on 1 January 2018 and progressing to  charitable companies with annual income over £500,000 on 1 August 2018. The Commission recommends using its model CIO constitutions (foundation model where the CIO’s members and trustees will always be the same people; association model where there will or may be a membership wider than the trustees). Even when using a Commission model, prior consent from the Charity Commission is needed if there are to be any changes to the company’s objects, trustee benefit provisions or dissolution clause. There may also be provisions in the company’s articles of association or other agreements that require consent from the Commission or an external body for some changes, and/or company law rules may need to be followed for some changes affecting the rights of members and constitutional provisions.

Community interest company (CIC) conversion to CIO

Community interest companies (CICs) are by definition not charities, even if their objects are legally charitable. CICs with charitable objects which have realised they are losing out on the advantages enjoyed by charities (such as not having to pay corporation tax on profits, and getting rate relief on property rates) have in the past been able to convert to charitable companies. The Charity Commission is now drawing up procedures for CICs with charitable objects to convert to CIOs. These are expected to come into effect from 1 September 2018,

Resources

Charity Commission guidance:

Deciding whether to convert from charitable company to CIO:

Legislation