The benefits to a charity of being a limited company are increasingly outweighed by the risks, costs and administrative burden. That’s why many are converting to Charitable Incorporated Organisations (CIOs), a legal structure designed especially for charities that’s easier to manage but still offers the same legal protections. And with the Charity Commission currently handling record numbers of new registrations, now is a good time to think about conversion.

What’s involved in converting to a CIO?

For most charitable companies, the process is straightforward. You’ll need:

• A new CIO constitution (we can help you draft this)
• A couple of formal member resolutions (we can provide template wording) and
• An application to the Charity Commission using their online form (we’ll guide you through this too).

Your charity number stays the same, and apart from registering with the Land Registry the transfer of any land interests, there’s no need to transfer assets or consult employees; the company simply changes legal form and becomes a CIO.

Why convert?

Reduced admin

Charitable companies report to two regulators: Companies House and the Charity Commission, whereas CIOs report only to the Charity Commission. This means less paperwork, fewer deadlines, lower admin costs, and no need to comply with company law.  New additional requirements expected to be introduced by the Economic Crime and Corporate Transparency Act (“Act”) include mandatory identity checks for director-trustees and software-only filing of digitally ‘tagged’ accounts and trustee annual reports and this is likely to further increase the admin load for charitable companies.

It remains to be seen whether any exemptions, special products or tailored guidance will be introduced.  A formal announcement about the proposed changes in filing requirements was expected in July – but this was delayed, with Companies House committing to further stakeholder consultation and citing the need to balance transparency with the burden on business. The latest update to the Government’s published transition plan for the Act confirms that Companies House will require all accounts to be delivered via software but does not commit to a date for commencement of the formal notice period.

Improved governance arrangements

CIOs offer more flexibility in how your charity is run. For example:

• In a company, members can remove directors by a simple majority. In a CIO, you have more freedom to tailor member rights to your charity’s needs.
• CIO trustees can make decisions between meetings without needing unanimous agreement, making your board more agile in a crisis or when opportunities arise.

Conversion is also a chance to:

• Refresh an outdated governing document by adopting a robust and modern constitution. The Charity Commission’s model CIO constitutions are based on best practice and will suit most charities. For those with more specific needs such as a-typical decision-making arrangements, we can help create something bespoke. And if you want to make changes to your charity’s purpose, trustee benefits, or asset disposal rules, we can help you get the necessary Charity Commission consents.
• Rethink the governance model, for example considering a move from a wider membership base to a trustee-only membership (or vice versa). While this sort of change can’t be made during conversion, with member approval, it can be done either immediately before or after conversion.

Reduced compliance risk

Company law carries serious consequences if breached, including fines, disqualification, even imprisonment in extreme cases. The new Act adds even more complexity and tougher penalties, increasing the risk for trustees of charitable companies.

Lower costs

Charitable companies pay annual fees to Companies House to file confirmation statements, plus other fees over time. CIOs don’t.

And while the new requirement to use commercial software to file fully ‘tagged’ digital company accounts – requiring specialist software and skills – isn’t expected to kick in until at least April 2027, it seems likely that many charities will incur additional costs as a result of this change.

CIOs may also benefit from lower audit or examination costs, depending on your size – check with your accountant or treasurer.

Is a CIO right for your charity?

For some charities, continuing as a company will still make commercial and practical sense but for many others, the risks and burdens may now outweigh the benefits.

If you’re a trustee or senior leader of a charitable company and want to explore whether switching to a CIO could help your charity run more smoothly, reduce risk and save money, then we’re here to help. We can advise you on your options and guide you through every step of the conversion process.  Get in touch with  Jo Green to discuss your options.