Converting to a Community Benefit Society - What can you learn from the Clevedon Pier decision?
The Charity Commission has recently published an interesting case report on Clevedon Pier and Heritage Trust Limited (CPHT), which provides a rare example of the conversion of a charitable company to a community benefit society (a society).
The report gives a useful summary of what might be involved should a charity wish to convert to a society, and outlines the lessons that can be taken from this case.
What is a society?
In short, a charitable community benefit society is a type of exempt charity that can offer interest bearing withdrawable shares to its members.
A Case Summary
CPHT was set up to restore and preserve Clevedon Pier, the only intact Grade 1 listed pier in the UK, and was originally incorporated as a company limited by guarantee.
CPHT planned to improve facilities at Clevedon Pier, including the building of a new visitor and education centre. It received 90% of the funds required to complete the project in the form of grants from the Heritage Lottery Fund and the Coastal Communities Fund. In order to raise the remaining 10%, the trustees of CPHT contacted Co-operatives UK to discuss plans to launch a Community Share Scheme.
Such a scheme would enable CPHT to raise funds by issuing shares to the local community. Co-operatives UK, therefore, sought the consent of the Commission, on behalf of the trustees of CPHT, to convert the charitable company into a society. The Commission's consent was needed because the replacement of the charitable company's articles with a set of society rules was a regulated alteration under section 198 of the Charities Act 2011.
The Commission's Decision
The Commission gave their consent to the conversion of CPHT into a society and when considering any future applications for consent, the Commission is likely to pay regard to the following:
- why a charity wants to convert to a society
- whether a charity is working in the community for the public benefit
- whether the trustees can justify their decision to convert to a society as a reasonable one
- whether the new objects and dissolution provisions remain exclusively charitable
- whether the provisions for issuing withdrawable shares meet the Commission’s requirements
- whether any surplus generated will be applied solely to the society
Following conversion to a society, a charitable company will be de-registered with Companies House and removed from the register of charities, and must no longer use its registered charity number. The new society will be registered with the Financial Conduct Authority and will need to register with HMRC (as a charity for tax purposes).
The Impact on the Wider Sector
The Commission has expressed the view that 'converting to a community benefit society can provide an innovative solution for a charity trying to raise additional funds by involving local people in saving valuable community assets'.
However, it acknowledges that the process can be complex and time consuming.
When considering whether to convert to a society, the Commission recommends that a charity's trustees should:
- consider whether a community share offer is the most appropriate way of raising funds
- seek advice on community share schemes
- ensure they are acting in the best interests of their charity (further information can be found in the Commission's guidance on decision making)
- ensure that if the conversion takes place, a set of rules is adopted that meets the requirements of both the Co-operative and Community Benefit Societies Act 2014 and charity law
- be aware that becoming an exempt charity does not affect or change their basic duties under charity law
Conclusion
It remains to be seen how many charities will actually convert to a society in order to raise additional funds, but it should be borne in mind that the process is unlikely to be quick or straightforward.
Charity trustees considering the process must always ensure that their decision is well-informed and in the best interests of the charity.