Is your charitable status fit for purpose? Step 2 time to change - why, when and how?

In step 1 we looked at general issues relating to charity structures but once an organisation has decided to change or review its charitable status which way should it go, when should it do it and what needs to happen? Although the principles in this item apply across the UK you should check with your Charity Regulator if operating in Scotland or Northern Ireland.
 
Why should you change structure?
If you are registering a charity from scratch or reviewing your current status then there are four main issues to consider.

  • Do you need to enter into contracts (including employing staff)?
  • Do you want to deliver charitable services under contract (for example with a local authority)?
  • Do you want to limit or remove Trustee liabilities?

  • Do you want to register the title of your charity’s land or property into its own name (if it is not already)?

If any of the answers to these questions is ‘yes’ then a Charitable Incorporated Organisation (CIO) structure is probably the best way to go for most small churches or mission initiatives.

It is of course worth remembering that CIO status will not remove liabilities altogether but bring them into line with those for directors of a Limited company. There is no excuse for negligent behaviour and proper risk assessments are still required.
 
There are some downsides for an Exempted Charity or a Registered Unincorporated Charity making this change.

  • The new CIO will be a new legal entity with a new charity number so you will need to notify banks, HMRC, suppliers and update your literature.
  • Existing contracts such as employment contracts and leases must be reassigned to the new CIO.
  • Any permanent endowments (land, buildings, or certain investment funds) will need to be transferred

Even if you do much of the work yourselves there are likely to be some costs such as legal fees as well as many of hours of time and lots of meetings.
 
When should you do this?
If you are operating as a charity but are not an Exempt Charity, or are not registered but have an income of over £5,000 then you are probably operating illegally so you should start this process immediately.
 
If you are an Exempted Charity then will probably have this status removed in the next few years so it is a good idea to start the planning now.
 
If you are entering into more contracts then it is a good idea to change status before entering into these.

If you are reviewing your charity's documentation such as the constitution then it makes sense to do this just the once and change now.
 
How do we go about this?
Every charity will be different but the general steps are as follows:

  1. Set up a CIO using the guidance from the Charity Commission.
  2. Transfer assets (this can be done by agreeing to give all the original charity’s assets to the new CIO).
  3. Close the original charity.

This is obviously a simplification but the Charity Commission provides more details in acheck list and other resource for changing your structure.
 
For most organisations looking to become a CIO the biggest single issue is getting the constitution right and we will be looking at this in step 3.


Nick Jones