Should your charity convert from a Charitable Company to a CIO? A Practical Guide for Trustees

Historically, the charitable company limited by guarantee was the default incorporated structure for charities. However, since their introduction in 2013, charitable incorporated organisations (“CIOs”) have become an increasingly established legal structure within the charitable sector with the majority of new charity registrations adopting a CIO structure. As regulatory requirements for charitable companies have increased, many trustees are revisiting whether a charitable company remains the most appropriate vehicle for their charity, or whether conversion to a CIO could provide a simpler governance and reporting framework.

In this article, we explore why charities convert from charitable companies to CIOs, the key steps involved in the conversion process, and practical considerations for trustees and senior leadership teams.

Charitable companies are subject to both company law and charity law and are accountable to both Companies House and the Charity Commission. CIOs, by contrast, are subject to charity law and are regulated solely by the Charity Commission.

In recent years, Companies House has become an increasingly proactive regulator. The Economic Crime and Corporate Transparency Act 2023 introduced mandatory identity verification for all company directors and persons with significant control, as part of its aim to tackle economic crime using corporate structures – though note it has been suggested that the Charity Commission may adopt a similar regime.

As the regulatory divergence between charitable companies and CIOs widens, trustees are increasingly being prompted to consider converting to a CIO when undertaking their governance reviews, particularly as this would also eliminate dual filing and reporting obligations.

Conversion should be approached as a strategic decision, not a procedural step. A CIO will not be the right structure for every charity and trustees should consider the advantages and disadvantages in light of the charity's activities, governance arrangements and future plans.

Trustees should ensure that the CIO structure – and, in particular, the proposed CIO constitution – can support the charity’s governance arrangements and intended activities. CIO constitutions are expected to follow the Charity Commission’s model constitution closely. Departures are not prohibited but they must be carefully considered and justified. Some charities may conclude that the flexibility available for charitable company articles of association is preferable.

Trustees should also be satisfied that there are no legal or practical barriers to conversion. For instance, funding or secured lending arrangements may impose restrictions on or require consent prior to, changing legal structures. Such terms must be complied with, and makes early engagement with stakeholders key.

Trustees should also consider whether any regulated alterations are required (i.e. changes to the objects, trustee benefit provisions departing from the Charity Commission’s model documents, or dissolution provisions). This is one of the most common causes of delay in a conversion project. These changes cannot be made as part of the conversion itself and must be approved by the Charity Commission either in advance or post conversion, which will affect the overall timetable of the project.

There is a specific statutory process that allows charitable companies to convert to CIOs without the need to transfer assets and liabilities to a separate charity. Following the conversion, the charity continues as a CIO with the same name and charity number, and its property, rights and liabilities remain vested in the charity without the need for formal transfer arrangements.

The key steps are:

• Preparing a CIO constitution, noting that there is a requirement for it to be as near to the Charity Commission’s model as circumstances admit;

• Trustee approval of the conversion and proposed CIO constitution;

• Member approval of the conversion and adoption of the CIO constitution in place of the existing memorandum (if any) and articles of association; and

• Submitting an application to the Charity Commission, including the members’ resolution, trustee declaration forms (of the first CIO trustees), the proposed CIO constitution and a comparison document showing any departures from the model constitution.

Additional information or supporting documents may be required depending on the circumstances, as outlined in the Commission’s guidance.

The Charity Commission will review the application and may raise queries, particularly where the constitution departs from its model form. Current timelines should be factored into planning, with applications currently taking 16 - 20 weeks to receive an initial response.

On conversion, the Charity Commission will register the organisation as a CIO and inform Companies House so that it can remove the company from the Register of Companies. The charity remains the same legal entity and therefore assets, contracts and liabilities do not need to be transferred to a new charity. This is often one of the principal advantages of the statutory conversion process.

However, practical steps are likely to remain. These could include notifying HMRC, the Land Registry, funders and banks, and updating contracts, as well as other operational documents to reflect the new legal form.

Trustees should also consider taking accounting advice on the accounting and reporting requirements applicable to CIOs and ensure that appropriate changes are made to the charity's financial reporting processes where necessary.

The CIO is not a new structure, but its relative advantages are becoming more pronounced as the regulatory landscape evolves.

For many charitable companies, conversion to a CIO can reduce administrative burdens by removing Companies House filing requirements and leaving the charity accountable to a single regulator. It also provides an opportunity to refresh the charity’s constitutional framework and align with current regulatory expectations and best practice, including by being able to adopt the Charity Commission’s model CIO constitution, which is kept updated and covers both a ‘foundation’ and an ‘association’ model.

However, conversion is not suitable in every case and trustees should carefully consider constitutional flexibility, stakeholder requirements and any regulated alterations that may be required before proceeding.

If your charity is considering converting from a charitable company to a CIO, specialist advice at an early stage can help identify potential obstacles, establish a realistic timetable and ensure the conversion proceeds smoothly. Trustees considering converting to a CIO should have regard to the Charity Commission’s guidance when planning and implementing the process. This provides a helpful checklist to review prior to taking any steps towards conversion.

Ciara is an associate in the charity law and not for profit team. She advises on a wide range of governance and commercial matters including establishing new charities, incorporations, governance documents, mergers, commercial contracts, fundraising and trading. Pippa is a partner in the charity law and not for profit team and advises charities, social enterprises and other not-for-profit organisations on all aspects of charity law.