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New Legislation Enables Conversion

January 2018

Setting up a New CIO

In 2013, the Charities Act introduced a new type of legal structure – the CIO - a form of legal entity designed specifically for charities. Since 2013, numerous new charities have been set up as CIOs. Some charities set up (whether before or after 2013) as charitable companies, trusts or associations would like to operate as CIOs, if practicable.

Converting to a CIO

We have recently updated our Guidance Note - Charitable Incorporated Organisations (in our Charities & Non-Profit Group) to take account of recent legal developments relating to conversion of existing charitable companies to CIOs (Charitable Incorporated Organisations) where a charity wishes to convert.

New Legislation Enabling Conversion

After a long delay by H M Government, The Charitable Incorporated Organisations (Conversion) Regulations 2017 were finally passed into law on 8 December 2017. The Regulations were needed to provide a direct conversion process for existing charities to use. They permit conversions to take place from 1 January 2018.

Conversion Process

A charity which was initially set up as a charitable company could not simply convert to a CIO until the Regulations were passed in December 2017. Until then, a charitable company would have had to close and create a new CIO and transfer its operations to that new CIO entity, involving considerable expense and complication.

The Regulations now to a large extent remove those practical barriers, allowing for an easy and quick conversion by means of an application to the Commission. Where a charitable company does decide to convert to become a CIO, the process will be relatively simple and inexpensive because it will not need to close or transfer its assets and liabilities to a new entity, renegotiate its contractual obligations, re-register with the Charity Commission or obtain a new registered charity number, and legacies to the charity in its previous form will become payable to the new form.

The Charity Commission has published a phased timetable for charitable companies to convert to CIOs. The phasing will depend on the size of the annual income of the charity in each case. Where the income is:

  • less than £12,500, the earliest conversion date is 1 January 2018
  • between £12,500 and £25,000, the earliest conversion date is 1 March 2018
  • between £25,000 and £100,000, the earliest conversion date is 1 May 2018
  • between £100,000 and £250,000, the earliest conversion date is 1 June 2018
  • between £250,000 and £500,000, the earliest conversion date is 1 July 2018
  • over £500,000, the earliest conversion date is 1 August 2018.

Should you Convert to a CIO?

There is no legal requirement or expectation by the Charity Commission that any charity will convert to become a CIO, but there are some advantages in doing so, particularly in terms of reduction of the regulatory burden on a charity.

There are also some disadvantages of converting to a CIO. Operating as a CIO is not a suitable or advantageous option for every charity, and so many charities do not wish to set up initially as CIOs or to convert to become CIOs. Indeed, since 2013 use of other existing types of legal structure (e.g. charitable company, trust or association) has remained popular with many start up charities.

The decision in any particular case as to whether or not a charitable company should convert to become a CIO should be made only with the benefit of legal advice.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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