Commercial and local authority landlords could benefit from urgently reviewing their legal options.
It was first referred to in the Charities Act 2006 (which was subsequently replaced by the Charities Act 2011) but it has finally been announced that charitable companies are able to convert to a charitable incorporated organisation (“CIO”). However, there will be a phased implementation process with smaller charitable companies being the first to convert to CIOs. Community interest companies (“CICs”) will also be able to convert to a CIO from 1 September this year.
- Charitable companies – annual income of less than £12,500 – 1 January 2018
- Charitable companies – annual income between £12,500 and £25,000 – 1 March 2018
- Charitable companies – annual income between £25,000 and £100,000 – 1 May 2018
- Charitable companies – annual income between £100,000 and £250,000 – 1 June 2018
- Charitable companies – annual income between £250,000 and £500,000 – 1 July 2018
- Charitable companies – annual income over £500,000 - 1 August 2018
- Community interest companies – 1 September 2018
The Charity Commission hopes that the process in converting charitable companies to CIOs will be simple and straightforward. It has confirmed that there will need to be a Special Resolution which authorises the conversion and approving the Constitution for the proposed CIO. The Special Resolution and Constitution will need to be provided as part of the application process to the Commission. The Special Resolution can be done in writing but only if all of the Company Members have approved the conversion.
If you want to convert your charitable company to a CIO then it must be up to date with its filing requirements at Companies House and the Commission.
The Commission has confirmed that the application is likely to be rejected if the charity makes changes to the Constitution which are not currently covered in the Articles of Association and would usually require the Commission’s prior consent, for example:
- change of name – other than removal of the words “Limited” or “Company”
- the name is listed on the Registrar’s Business Names Index and requires approval from a third party;
- any additional trustee benefits; and
- fundamental changes to the dissolution provisions.
Community interest companies
As a CIC is not a charity, the Commission will need to be satisfied the proposed CIO will be exclusively charitable. The Charitable Incorporated Organisations (Conversion) Regulations 2017 confirms a similar process to charitable companies for CICs converting to CIOs. However, it is important to note:
- CICs with a share capital cannot convert if they have any shares not fully paid up. It also means that any shares are cancelled on conversion;
- CICs cannot convert to a CIO if they would be exempt from charity registration; and
- a CIC limited by guarantee must provide in the CIO Constitution that members of the CIO contribute to its assets if the CIO is wound up unless the amount each member of the CIC was liable to contribute is £10 or less.
Please note that:
- unincorporated charities are not able to use the conversion process and must establish a new CIO and transfer its assets and liabilities to the CIO; and
- exempt charities and charitable community benefit societies are not currently able to convert to CIOs and there is no plan in amending legislation (contained in the Charities Act 2011) which would permit CCBSs ceasing to be exempt from charity registration.
For more information
If you would like assistance in relation to converting your charitable company to a CIO or establishing a CIO for your existing unincorporated charity please contact Katie Douglas or your usual contact in the Charities team.
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