Ollie Flowers

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Charitable Incorporated Organisation (CIO)

Essentials / 08 February 2018

Background
Charitable Incorporated Organisations (“CIOs”) were introduced in 2013 and offer an attractive, alternative legal structure for some charities.

Most charities currently operate as charitable companies limited by guarantee, charitable trusts or charitable unincorporated associations. Until 1 January 2018 charity law made little provision for charity companies to convert to CIOs and no provision was made for the conversion of Community Interest Companies (“CICs”) to CIOs.

Legal updates 
Legislation that came into force on 1 January 2018 means that:
1. charitable companies can now understand what information must be provided alongside an application to convert to a CIO, and the circumstances in which an application may be refused;
2. CICs (which cannot be charities) can now convert to CIOs without incorporating a separate entity
3. a phased introduction has been implemented to stagger conversions by charitable companies to CIOs, depending on the charitable company’s annual income (see below);
4. CIO names must be kept on the Index of Company Names at Companies House. As a result, CIO names will be protected from other companies incorporating with or changing their names to something similar to or the same as the CIO name; and
5. CICs will now be entitled to challenge a decision of the Charity Commission to refuse an application to convert to a CIO.
Statutory guidance for recent charity legislation tells us that around 30,000 charities have chosen to incorporate as a company limited by guarantee, and between 7,200 and 12,600 of those charities are expected to convert to CIOs over the next 10 years.

Why convert to a CIO?
There are substantial immediate and long-term benefits to converting to a CIO, whether you are an unincorporated association, a CIC or a company limited by guarantee:
1. Like a company limited by guarantee, a CIO has a separate legal personality. It can enter into contracts and hold land and assets in its own name, rather than the names of the charity trustees. Crucially, this means that the liability of the trustees is limited.
2. Unlike companies limited by guarantee, which must comply with both charity law and company law, a CIO only needs to register with the Charity Commission and is governed predominantly by charity law. This is particularly beneficial when you consider the time and costs associated with the reporting, filing and accounting requirements under charity law compared with company law.

When can your charitable company convert?
The proposed phasing for applications for conversion are:
1 January 2018: Charitable companies with an annual income of less than £12,500
1 March 2018: Charitable companies with an annual income between £12,500 and £25,000
1 May 2018: Charitable companies with an annual income between £25,000 and £100,000
1June 2018: Charitable companies with an annual income between £100,000 and £250,000
1 July 2018 Charitable companies with an annual income between £250,000 and £500,000
1 August 2018: Charitable companies with an annual income greater than £500,000

The timetable does not address CIC conversions but the consultation report provided that CICs could apply from 1 September 2018.

If you are looking to register a new charity, you can register the charity as a CIO from day one.

We have acted on a number of CIO conversions and we understand that tight budgets and busy schedules make it difficult for charity organisations to find the time and resources to commit to changes such as a CIO conversion.

If you decide a conversion is right for your charity, we can assist you at each stage of the conversion, making it simple and hassle free and leaving you to get on your charity’s fundraising and other activities.

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