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Posted by Sarah Brown on 13 Nov '20

Could you save time and money by changing to a CIO?

If you are a company limited by guarantee it might make sense to convert to being a CIO

It's challenging for all charities at the moment. So anything that makes life easier is worth considering.

The majority of registered charities are still companies limited by guarantee with charitable status, but it is relatively simple to change into a Charitable Incorporated Organisation (CIO). As a CIO you don't have to make returns to Companies House each year which saves time and money, both at a premium at the moment. It also gives you a chance to update your constitution if you haven't done it recently to reflect the digital era.

An introduction to CIOs

CIOs are similar to companies, in that they have the same legal status as a person. The CIO enters into contracts in its own name. Trustees and members have limited or no liability for the charity's debts. A CIO can employ staff, own freehold property and take on a leasehold property, and enter into commercial contracts in the charity's name.

There are two different types of CIO: Foundation CIOs and Association CIOs. The Foundation CIO is a suitable structure for a charity that is to be run entirely by its trustees who are the only voting members. The Association CIO is an appropriate format for a charity that wishes to involve more people and have a separate wider voting membership participating in the governance of the charity. A Foundation CIO should be easier to administer than an Association CIO.

Changing status

From 1 January 2018, charitable companies with a yearly income of under £12,500 could use a simple process to change to a CIO. Now, all charitable companies, even those with a turnover of £500k+, can switch to CIO status if they wish.

Using this process means that the charity continues to exist but in a different form. This means you'll be able to keep the charity's existing name and charity number.

You should also be able to keep the charity's existing bank accounts, and in most cases, the new CIO should receive any legacies left to the original charitable company.

As there is no change in legal status, transferring assets and liabilities or getting new data consents under GDPR is unnecessary.

The conversion process should be simple and straightforward in most cases. As part of this process, the new CIO Constitution and Special Resolution will need to be included before submission to the Commission.

The Commission will liaise with Companies House to ensure that necessary records are updated correctly. This means that the date of conversion of the charitable company to a CIO – as shown on the public register of charities – will match the date of removal of the charitable company from Companies House.

It is the role of a charity's trustees to determine whether a conversion is the most appropriate option for the charity. A charitable company that has granted a floating or fixed charge like a mortgage must consider what effect the conversion to a CIO would have on that charge, and seek appropriate independent advice on the matter before applying for conversion.

If you'd like to chat about this or any other issues you are facing, feel free to give us a ring.

There is also more information here:

Starting up or converting from a business to a charity or social enterprise

An introduction to CIOs

New opportunities - the first charity raises money from a share issue

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Tags: charity