You may recall that we reported last year on the proposed process for converting an existing charitable company or community interest company (CIC) to a charitable incorporated organisation (CIO). After a lengthy delay, the government has now published its response to the consultation on the conversion process, including draft regulations and a revised implementation timetable.
The new draft regulations provides a simpler transition route to becoming a CIO for charitable companies, via an application to the Charity Commission. Currently, charitable companies or CICs wishing to convert to a CIO need to set up a new CIO with the same charitable purposes as the original charity and transfer all of the assets to the new CIO. The new process will save a significant amount of time and costs and avoid renegotiation of contractual obligations.
CIOs are also to be added to the index of company names, restricting new companies from registering a name the same as, or too similar to, a registered CIO.
Subject to the approval of the secondary legislation, the first window for applying to convert a charitable company into a CIO will open on 1 January 2018. The first applications will be for charitable companies with an income of less than £12,500. The following months will allow charitable companies with greater annual incomes to apply, with those with an annual income greater than £500,000 being able to apply from 1 August 2018.
CICs will then be able to apply from 1 September 2018. There is a slightly different process for CICs as the Charity Commission will need to assess whether the proposed CIO would be a charity.
The rationale behind the phased implementation is to ensure the Charity Commission can process applications effectively and not be overwhelmed on day one. It is expected that smaller charities are more likely to want to convert quickly owing to the administrative burdens on them.
The CIO structure has increased in popularity since its introduction in 2012 and now accounts for over 50% of new charity registrations. Some charitable companies may find dual regulation by the Charity Commission and Companies House and the requirement to comply with company law to be unnecessarily cumbersome. This is more likely to be the case for smaller charities with limited resources. Depending on the size and activities of the particular charity, converting to a CIO may be an appropriate way of relieving regulatory burdens and achieving a more proportionate approach to the charity's administration.
If you think your charity may benefit from converting to a CIO, we can advise you and help with the application process so that your charity is ready when the relevant window opens.