Converting a Charitable Company into a CIO

By Stephen Mathews | 24 March 2020

 

 

Regardless of size, any charitable company is now able to convert into a Charitable Incorporated Organisation (CIO). Because for a company this is simply a change of structure, the organisation retains its “corporate personality” but is no longer required to follow Company Law regulations.

This means:

 

  • No more sending accounts to Companies House;
  • No need to maintain a 'persons of significant control register'; and most importantly
  • The possibility of being able to produce accounts on a receipts and payments basis rather than the accruals basis, which is a requirement for all companies.

 

As yet, the process has not really been tested; so each company wanting to convert should consider the potential impact that conversion would have on their assets and liabilities. That said, we believe that in most aspects, the conversion process should prove to be straightforward.

 

  • Name - Generally the CIO can retain the name of the charitable company;
  • Charity Number - the organisation can continue to use the same charity registration number;
  • Bank accounts - It should be possible to retain existing bank accounts, although this may differ from bank to bank;
  • Legacies - legacies that were payable to the company should be payable to the CIO (however, as of March 2020 this has not been tested in court);
  • Employees - Expected to be minimal disruption under the TUPE (Transfer of Undertakings protection of Employment) regulations;
  • Contracts - Existing contracts with the company should continue into the CIO, but this should be confirmed with the contracting party.
  • Data consents - No new data consents are required under GDPR regulations;
  • Property - In theory a change in details in the title for land register will deal with this. However, given the potential value of this asset, taking professional advice would be sensible.

 

Where there might be problems

 

So far so good, but we can see a few problem areas as well.

 

The Constitution

 

As part of the conversion process, a constitution for the CIO must be submitted and accepted by the Charity Commission. This constitution could:

 

  • Be written from scratch, most likely with the help of charity lawyers;
  • Be based on a model constitution template (normally drawn up by an umbrella organisation e.g. Baptist Union) already agreed with the Commission and easily adapted to individual conversions;
  • Be based on the Commission’s own model constitution templates, but here it should be noted that these templates do not allow for the employment of trustees or connected persons. This means that in their raw state they will not be suitable for many churches;
  • Use the company’s existing governing documents as the basis for the new constitution. This may appear a straightforward approach, but as the mind-set of the Commission evolves over time, what may have been acceptable previously may no longer be now.  The employment of trustees, omitted from their own model constitution templates, is one particular area that may cause problems.

 

Other areas to look out for

 

  • Loans - where the charitable company has a loan, it will need to determine whether conversion could be construed as an event of default;
  • Pension obligations - where the company has pension obligations, particularly a deficit on a defined benefit pension scheme, it will need to determine whether the conversion will trigger the payment of employer debt. Given the size of some debts, this will almost certainly require specialist advice.

 

The conversion process

 

Applications are made using an online form found on the Charity Commission website. Each application will require:

 

  • A resolution confirming the decision to convert;
  • The proposed constitution;
  • The resolution adopting the proposed constitution;
  • A declaration that the trustees of the CIO are eligible to serve as trustees.

 

Following checks carried out by the Charity Commission, they will ask Companies House to remove the Company from the register of companies at which time the conversion will be complete.


Read more...

Apply to convert a charitable company to a CIO

Setting up a charity: model governing documents

Posted by Stephen Mathews
 
Stephen is a Senior Consultant at Stewardship and has spent over 25 years in the accountancy profession. Stephen is a trustee for a number of small Christian charities and has been involved in various church leadership roles for over 20 years.

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