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Small charities and CICs given opportunity to convert to new legal structure

30/11/2017

Company charities and Community Interest Companies (CIC) across Shropshire and the West Midlands should soon be able to take advantage of a relatively new legal structure much more easily following a consultation led by the Charity Commission.

The Charitable Incorporated Organisation (CIOs) structure was first introduced in 2013 as an alternative and simpler means by which charities could be established with the benefits of limited liability.  It has since proved to be popular with over 6,500 new CIOs being established and now, draft regulations have been produced which should soon enable existing company charities and CICs to easily convert to the CIO structure should they wish to.

In the past, many charities wishing to have company or limited liability status would need to register a company at Companies House and separately register as a charity with the Charity Commission, and whilst the establishment of the CIO structure ushered in a new option that simplified this for new charities, until now any charity wishing to convert to CIO would have needed to establish a new CIO and transfer its existing assets to it before then closing the original organisation.  Moving forward, however, direct conversion will mean a charity can keep its existing name, bank details and even charity number.

This will make a big difference to company charities and CICs across the region, as Stuart Rea, a Partner in FBC Manby Bowdler’s specialist Charities and Not-for-Profit team, explains:

There are many small and medium sized charities for whom the option to convert to a CIO, whilst attractive, was simply not feasible due to the time, manpower and, of course, cost involved.

Moving forward, however, charities which chose to convert to a CIO structure should be able to do so more easily and in doing so, will enjoy less onerous reporting requirements – something which is particularly important to smaller organisations.”

The timeframe for easier conversion to the CIO structure is to be staggered and Stuart Rea advises that any organisation considering such a move, takes its time to consider if it’s appropriate for them:

Whilst the CIO structure with its ‘best of both charity and company’ facets appears appealing to many small charities and CICs, it won’t be appropriate for all organisations.

First off, you’ll need to consider the process of conversion itself.  Whilst this is being made easier, until the regulations are finalised we don’t know how long this process may take. Then there’s the relative lack of flexibility around governance of CIOs.  For some organisations, this will appeal as it lessens the chance of making mistakes, but for some, adherence to the Charity Commission’s model constitutions may feel overly restrictive. Also, CIOs may not be appropriate for charities who use or expect to use secured borrowing.

Certainly, the decision by the Charity Commission to simplify conversion to a CIO will be welcomed by many small and medium sized charities, however, I’d urge any organisation contemplating this to first seek expert legal advice so that they ensure they make the right decision for their particular needs.”

For further advice, please contact Stuart on 01743 284159 or s.rea@fbcmb.co.uk

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