Why convert?
There are some advantages and some disadvantages to being a CIO compared with a charitable company. What is right for any particular charity should be considered in its specific context.
Advantages
Some charity trustees prefer the idea of a CIO as it simpler administratively. There is only one regulator (the Charity Commission), there is no need to deal with Companies House and company law does not apply. The charity only has filing obligations with one regulator and, if the charity has an annual income of less than £250,000, it will benefit from more relaxed accounting rules. A ‘converter CIO’ will usually be able to keep their existing charity name and their existing charity number.
Disadvantages
- It should be noted that charities who wish to borrow money in the future may find it easier to deal with banks if they have a charitable company as opposed to a CIO structure. This is especially true if the charity is considering securing property other than land. Whereas Companies House maintains a register of charges, the Charity Commission does not. This means that lenders to CIOs who are taking a charge against something other than land do not have any public means of recording (and alerting others to) their charge.
- Unlike a company, a CIO is dependent for its existence upon its continuing Charity Commission registration. If for any reason a CIO is de-registered with the Charity Commission it will cease to exist as an entity, whereas a charitable company would continue to exist as an entity provided it remained registered at Companies House.
- The familiar nature of company law compared with the law governing charitable incorporated organisations may be attractive to some, particularly larger, charities.
- More practically, whilst being a charitable company often means extra administration, charitable companies can make changes to their constitutions much more quickly than CIOs can. Changes to a charitable company’s constitution (its Articles of Association) come into effect on the date a special resolution of the company’s members is passed (unless the charity is changing its objects in which case the change becomes effective on the date the amendments are entered onto the Register of Companies). Any changes to a CIO’s constitution, on the other hand, only become effective on the date the Charity Commission registers the changes. The Charity Commission response times can be several weeks meaning there can be a period of delay before a CIO’s constitution is updated.
Conversion process
In order to convert the Charity Commission require:-
- a copy of a resolution of the company confirming its decision to convert and approving the CIO constitution,
- a copy of the proposed CIO constitution,
- a signed trustee declaration form, and
- details of any ‘entrenchment’ provisions in the constitution.
It is the CIO constitution which is particularly important and care has to be taken to ensure the charity does not inadvertently change the rights of its members or constitutional processes without proper consideration or authority to do so.
Consent of the Charity Commission is required in order to change the charities objects, trustee benefit provisions or dissolution clause.
If you would like to discuss whether your charity should consider converting or the conversion process itself, please contact us either by phone tel: 01925 757 887 (m) 07710141058 or email mikefarrell@charity-registration.com