Why charities should consider converting to a CIO

Becoming a Charitable Incorporated Organisation (CIO) can have a wide range of benefits for nearly all types of charity, big or small. However, the process can be fairly complex, especially for larger charities with many assets.

Here, we explore what a CIO is, why becoming one can be beneficial for charities and explain the key steps which need to be taken when incorporating.

What is a CIO?

A CIO is a corporate body, which is specifically designed for – and only available to – charitable organisations in the United Kingdom. The Charity Commission is responsible for conferring and regulating CIO status.

CIO status first became available to charities in England and Wales in 2013, but the idea originated much earlier than this. Legislation to introduce CIOs was included in the Charities Bill in 2004, which subsequently became the Charities Act in 2006.

Following this, the Charity Commission began publishing guidance on becoming a CIO in 2011, with the first charity converting from a charitable trust to a CIO in 2013.

Why is becoming a CIO beneficial?

Prior to the advent of CIOs, there were three main types of charity structure – charitable companies, unincorporated associations and trusts.

Of these structures, only charitable companies are corporate bodies with their own legal personality.  Both unincorporated associations and trusts are unincorporated charities.

As an unincorporated charity is not a legal body in its own right, it cannot enter into contracts in its own name. This means the charity trustees have to enter into contracts on behalf of the charity and they can be personally liable if something goes wrong.

In addition, there can also be issues relating to assets such as real property, as these cannot be owned by the unincorporated charity.  Any real property needs to be registered either in the name of the Official Custodian or a group of trustees of the charity.  Complications can arise further down the line if any of the named trustees retire and/or die.

Historically, establishing a charity as a charitable company was the only way to avoid the above issues.  Charitable companies have a legal personality and therefore can enter into contracts, sue and be sued, and hold property in the name of the company – rather than in the name of the trustees.

However, charitable companies are subject to both charity law and company law and are required to register with both Companies House and the Charity Commission, each of which has its own regulations and requirements. This adds another layer of administration and complexity to running the charity.

By becoming a CIO, charities can now experience the benefits of being a corporate body with the need to only comply with one set of laws, charity law, and only one regulator, the Charity Commission.

Converting to a CIO structure

While there is legislation in place to help support both unincorporated charities and charitable companies becoming CIOs, the process can be complex at times and is significantly different for unincorporated charities and charitable companies.

Converting from an unincorporated charity to a CIO

When an unincorporated charity coverts to a CIO, a new charity is created.  The CIO will have a different charity number to the unincorporated charity and although it can potentially have the same name, it will be considered to be a new charity.

The first step is to choose the CIO constitution which best suits the unincorporated charity. A foundation CIO is suitable for a charity in which the trustees make all major decisions.  Whereas, an association CIO is more appropriate if the charity has a wider membership who vote on major issues regarding the charity.

Once a new constitution has been drawn up and agreed by all trustees, the new CIO can be registered with the Charity Commission. The CIO comes into existence when it is registered with the Charity Commission.

Next, the unincorporated charity’s assets need to be transferred to the new CIO, although it is important to first clarify whether permission is needed from the Charity Commission to do so.

Charity Commission approval may be needed if the trustees of the unincorporated charity are the same as the trustees of the CIO.  If some or all of the trustees are the same then a conflict of interest can arise which needs to be managed either by having decisions made by non-conflicted trustees or obtaining Charity Commission approval.

Once it has been established that permission is not needed, or permission has been given if required, then any assets can be formally transferred to the CIO. This is where the process can be complex, especially for larger charities with land or property and employees.

Following the asset transfer, the unincorporated charity should be wound up in line with any rules set out in its governing document and the Charity Commission should be notified of the merger of the charities.

This is a complicated process and it is best to obtain legal advice early on in the process to ensure everything goes smoothly.

Converting from a charitable company to a CIO

Since 2018, charitable companies have been able to use a fairly simple process to convert to a CIO.  Using this process means that the charity continues to exist but in a different legal form. As such, the charity should be able to keep its name and charity number, as well as any existing bank accounts.

Charitable companies wishing to convert to CIOs need to apply directly to the Charity Commission for permission to convert.

Before doing so, the trustees of the charity need to ensure that all filings with the Charity Commission and Companies House are up to date and they need to consider if any changes need to be made to the charity.  Examples of changes that may need to be made before becoming a CIO include a change of name or changes to the objects, a change to the provisions allowing benefits and payments to charity trustees and/or changes to the provisions about who receives any remaining funds if the charity is dissolved.

Once everything is in order, the charitable company can apply online for permission to convert.  The application includes a copy of the resolution confirming the decision to convert to a CIO, a copy of the proposed constitution for the new CIO, a copy of the resolution adopting the proposed constitution of the CIO and a declaration that the trustees of the CIO are eligible to serve as trustees.

Once the application is submitted and the necessary checks have been carried out, the Charity Commission will ask Companies House to remove the company from the register of companies and the registration of the CIO will be complete.

If the charity owns land or property it should contact the Land Registry to update the converting charitable company’s details.  This is a straightforward process.

In conclusion

We regularly work with both unincorporated charities and charitable companies to help them convert to CIOs. Our specialist charity team draws on expertise from across all our departments including our commercial property and employment departments, to be able to fully advise charities.

If you have any questions about converting to a CIO, please contact Clare Morison on clare.morison@ts-p.co.uk.