Opinion

New rules allow Charitable Companies to convert into CIO

9th August 2018

The Charitable Incorporated Organisation (CIO) conversion timetable implemented at the end of 2017 gives a schedule for conversion to the new legal structure spread over the nine months January – September 2018. As a result of the legislation some CICs and charitable companies have been able to convert into a CIO from 1 January 2018 on a phased basis based on income. A chart at the end of this article gives details of the implementation timetable.

CIOs were introduced as a new incorporated legal structure for charities back in 2013 and they have proven to be a popular structure for new charities to adopt.

One of the benefits to charities is the limited liability that comes with being a charitable company. Trustees of unincorporated charities are personally liable if the charity closes and might have to cover any losses over and above the charity’s assets. In a CIO structure the trustees would be protected from this outcome in all but exceptional circumstances.

The new structure also allows charities to enter into contracts in the name of the organisation rather than in the individual names of the trustees. In addition, CIOs do not have the administrative burden of filing accounts with Companies House as they are only regulated by the Charity Commission.

Implications for charities

The biggest downside for many charities is the lack of public recognition of CIOs. There is also no Register of Charges which would allow the charity to register a charge in the same way that a company can at Companies House. As a result a CIO would be less attractive to a charity which needs to borrow money and register securities.

Historically, existing charities who wanted to adopt the CIO structure would have to close down the existing charity before they could start operating as a CIO. However it is hoped that the conversion process will help to greatly simplify the process – one key advantage being that the existing charity will be converted into a CIO, thus keeping its existing charity number, making administration of the process much easier.

It is anticipated that this development is likely to be most popular with smaller charities that are keen to take advantage of limited liability but are put off by the additional burden of complying with Companies House regulation.

The process of converting to a CIO will not be appropriate for all charities and a significant amount of planning will need to take place before a transfer can be entered into to ensure the charity’s legal and other obligations are met.

For further information including advice on converting your charity to a CIO structure contact Kirsty McEwen.

CIO conversion phased timetable

Date

 

Which organisations

 

1   January 2018

 

Charitable companies annual income less than £12,500

 

1   March 2018

 

Charitable companies annual income £12,500-£25,000

 

1   May 2018

 

Charitable companies annual income £25,000 - £100,000

 

1   June 2018

 

Charitable companies annual income £100,000 - £250,000

 

1   July 2018

 

Charitable companies annual income £250,000 - £500,000

 

1   August 2018

 

Charitable companies annual income greater than £500,000

 

 

1   September 2018

 

CICs   – Charity Commission guidance expected mid-2018

 

Other news

Contact us

3 Waterfront Business Park
Brierley Hill
West Midlands, DY5 1LX

Email: law@higgsandsons.co.uk
Call Us: 0345 111 5050

Follow @HiggsandSons on Twitter  Join Higgs & Sons on Facebook  Join Higgs & Sons on LinkedIn

Newsletter

Keep up to date with all the latest here.