With effect from 1st January 2018, the excitingly titled ‘Charitable Incorporated Organisations (Conversion) Regulations 2017’, ‘Charitable Incorporated Organisations (Consequential Amendments) Order 2017’ and the ‘Index of Company Names (Listed Bodies) Order 2017’ will come into force.
These create increased restrictions on the names of new Charitable Incorporated Organisations (CIO’s) and set out the mechanisms for converting charitable companies, Community Interest Companies (CIC’s) and to a lesser extent Community Benefit Societies (CBS’s) to a CIO.
What’s in a name?
As a result of the Index of Company Names (Listed Bodies) Order 2017, all CIO’s will be included in the Companies House business names index from 1st January. This means that any CIO will not be able to change its name or to register a new CIO with the same or similar name to an existing business listed at Companies House.
A second effect of the legislation means that CIO’s will also be caught by the ‘sensitive words and expressions’ regulations that currently apply to businesses. Somewhat inconveniently these include the words “charity”, “charitable” and “trust” (amongst others). However, at the time of writing, the Companies Registrar has been advised by the Charity Commission that specific consent to use the terms “charity”, “charitable”, “association”, “foundation” and “trust” will not be needed. It is possible that in the future any organisation seeking registration as a CIO using these words in its name will need to obtain a letter of non-objection from Companies House before it can submit an application to the Charity Commission.
The New Conversion Regime for Charitable Companies
The remaining two pieces of secondary legislation deal with the conversion of various not-for-profit structures to a CIO. The most common of these is perhaps the charitable company.
Given that CIO’s are only obliged to file with the Charity Commission and not also at Companies House, and that they are not bound by aspects of the Companies Acts, converting can be an appealing move to save time and money.
The legislation specifies that the conversion will not create a new entity, which should make the process simpler. Charitable companies will keep their registered charity number, and because there is no transfer of assets or undertaking there should not be any issues with employees, pensions, legacies, property, data consents or conflicts of interest.
Charitable company trustees however should be careful. A CIO does not have a register of charges, and so if the company has any lending (secured or otherwise) it should consider the impact that conversion will have. It is unlikely lenders would be happy with a conversion to a CIO and may even consider it a condition of default.
Should a charitable company wish to convert, they will only be able to apply from the following dates according to their income.
1st January 2018
Charitable companies with an annual income of less than £12,500.
1st March 2018
Charitable companies with an annual income between £12,500 and £25,000.
1st May 2018
Charitable companies with an annual income between £25,000 and £100,000.
1st June 2018
Charitable companies with an annual income between £100,000 and £250,000.
1st July 2018
Charitable companies with an annual income between £250,000 and £500,000.
1st August 2018
Charitable companies with an annual income greater than £500,000.
In order to be eligible to make an application, a charitable company must have fully paid shares (if this applies) and not be an exempt charity. If eligible the company will need to submit a number of documents to the Charity Commission.
Once an application has been made the Charity Commission has an obligation to notify the companies registrar and any other party it deems appropriate.
Assuming the application is successful, the Commission will register the CIO in the register of charities and apply to remove the company from the register of companies. The date of conversion will be the date of removal at Companies House.
The Conversion Process for CIC’s
The process for converting CIC’s is broadly similar to that of a charitable company. However as a CIC is not a charity, conversion to a CIO will also involve the Charity Commission deciding whether it is eligible to become one. This may add additional time to the process.
Once registered the CIC regulator will be notified and the CIC removed from the register of companies.
The Conversion Process for CBS’s
Although the legislation allows for the conversion of CBS’s, a restriction states that a CBS cannot apply if it is an exempt charity.
Since all charitable CBS’s are exempt charities it is not currently possible for them to convert.
If you would like any advice in relation to the information above or any other charity law matter please contact a member of our charities team.
CHARITY AND NOT-FOR-PROFIT