How to convert a CIC into a CIO

More and more we are being asked to help CICs convert into CIOs. Usually this is because the client wants to benefit from the financial advantages charities have over CICs, such as access to more funding and/or the tax reliefs enjoyed by charities.

However, it is not just a question of whether the CIC Directors (the board) want to convert to a charity, it’s often a question of whether they can.

Most importantly, for any organisation to be a charity it must be established for exclusively charitable purposes (within the requirements of charity law) and it must be established for public benefit (again within the requirements of charity law).

For many CICs this simply isn’t the case, which is probably why they were set up as a CIC in the first place. It could be because the CIC is undertaking some non-charitable activities (such as commercial trading) or because there are significant benefits paid to Directors or because the CIC is set up mainly to benefit its members. Those CICs cannot convert into a CIO.

For other CICs it is often the case that they should have been set up as a charity in the first place and they were badly advised at the time.

For CICs that can convert, the process is, on the face of it, pretty straight forward:

• Pass special resolutions that confirm the members of the CIC wish to convert and adopt a CIO constitution.

• Apply to the Charity Commission to register as a CIO, which is the same process as applying to register a new CIO but with the conversion resolutions attached.

• Once registration is approved by the Commission and the formalities with Companies House have been finalised (which the Commission will do for you) there is no need to transfer assets (the CIC simply becomes a CIO), nor should there be any need to open new bank accounts or transfer contracts/agreements etc. Suppliers, funders, customers etc. just need to be told of the change of name and status.

So why is our help needed at all?

For most clients it is because of the complexities of charity registration, which can be compounded by lack of understanding amongst key stakeholders including the Commission itself, as well as suppliers, funders, customers and banks.

Charity registration is not always straight forward because the requirements to be a charity are complex and sometimes counterintuitive. Furthermore, the Commission has recently started asking additional clarification questions of CICs wishing to convert including:

• What has changed that the CIC can now be a charity and why does the CIC want to convert? This can be a deceptively difficult question to answer, particularly because of the nuances around what is and is not a charitable purpose and what is and is not public benefit.

• What assessment have the board made of whether it is in the interests of a charity (which the CIC will become) to assume the liabilities of the CIC on conversion? Interestingly the Commission has been asking this question as if assets will transfer, which they will not as there is no change of legal personality on conversion, which suggests a lack of understanding on their part.

Even after conversion, things can be less straightforward than they should be. Some banks insist on a new bank account being opened (even though it is not needed because there is no change of legal personality). When that happens (and they can just insist), there is the perennial problem that banks and charities just don’t seem to mix.

Other stakeholders can also be problematic, particularly funders and local authorities who sometimes don’t even realise that a CIC was not already a charity (even though CICs are by definition not charities).

Our role is often to help clients navigate these issues. In other cases our role is to advise them that they can’t convert in the first place (usually for the reasons outlined above or for other, more technical, reasons).

If you would like to explore further the issues raised in this article or you want to find out more about the governance support we offer for charities or CICs please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.