A Welcome Reduction in Red Tape for Charitable Companies

The Charitable Incorporated Organisations (Consequential Amendments) Order 2017 has approved changes to legislation allowing charitable companies and community interest companies to easily convert to charitable incorporated organisations (CIOs). Previously only new or unincorporated charities could convert to CIO status. A charitable company wishing to change it’s status to CIO would have had to transfer it’s assets into a new CIO if it wished to take this status, a cumbersome process few organisations decided to take up.

 

CIO’s give Trustees the protection of incorporation but removes the necessity to comply with both Charity law and company law. Practically this means a reduction in the complexity of reporting and in filing requirements for charitable companies that chose to convert.

 

The service has been made available from 1 January 2018 and takes a phased approach allowing the smaller organisations, considered to be more burdened having to comply with duel legislation, to convert first.

Conversion dates and size limits are as follows:
 Date Annual income
 1 January 2018  Less than £12,500
 1 March 2018  Between £12,500 and £25,000
 1 May 2018  Between £25,000 and £100,000
 1 June 2018  Between £100,000 and £250,000
 1 July 2018  Between £250,000 and £500,000
 1 August 2018  Greater than £500,000

 

A new CIO constitution must be drafted and a special resolution to convert must be made before the submission is made the Charity Commission. Model constitutions are available on the Charity Commissions website to assist organisations with this part of the process. Charities are often complex in both affairs and objects, so we would always recommend that the constitution is reviewed by an appropriately qualified professional to manage the risk of the Trustees inadvertently acting outside the charities objects or adopting a constitution which limits future activities.

 

Although the CIO model works for most entities it is worth noting that for more complex organisations there may remain some merit in retaining the company status. Currently there is no mechanism for registering legal charges/security in a CIO, this is something that could prove problematic for charitable companies who’s funders or lenders have charges or if applying for funding which may require a legal charge.

 

After agreeing the constitution and making the submission the process should be straightforward from the charity’s perspective. The Charity Commission will liaise directly with Companies House ensuring that the creation date of the CIO matches the date the company is removed from the register of Companies held by Companies House.

 

For further advice on these changes, please contact Laura Masheder: hello@garbutt-elliott.co.uk