This article is written by Claire Welling, our Leeds Community Accountant, in her capacity as a trustee of a charitable company, and documents the journey towards converting to a CIO.
The ability to apply to convert has been opening up by stages since January 2018 and from August 2018 is accessible for all charitable companies.
There are many pros and cons of converting but for us (the charitable company which I am a trustee of), it boiled down to being answerable to only one regulator, (the Charity Commission), instead of having to file at Companies House too.
Of course, if the accounts are filed late at Companies House there is a penalty to pay, so converting removes the risk of that penalty too. (I have heard the argument that being registered at Companies House gives greater legal assurance about charges on the charity, which may become important if the charity needed to secure a loan, for example).
How to convert? The guidance does give clear information so I am not intending to repeat that, just tell you what we have done and how we are progressing.
Step 1 – We used the model CIO Association constitution to write our new governing document. This means the charity has voting members other than its trustees i.e its members. (If only the trustees can vote you want the Foundation model). We kept the words as close to our memorandum and articles as possible as we did not want to be delayed by the Charity Commission having to process other changes.
Step 2 – We circulated the proposed new constitution around our members.
Step 3 – At our AGM (mid May 2018) we formally proposed and approved the conversion and the new constitution.
Step 4 – All trustees had to sign an eligibility statement to be submitted with our application. Getting all the signatures can be time consuming!
Step 5 – We submitted the application online, (the new constitution, the signed eligibility statement, the resolution to convert and the resolution to accept the proposed new constitution). Submitted at the end of May.
Step 6 – Six weeks later we had heard nothing, but a phone call to the Charity Commission allowed me to find out that we were in a queue, to be assigned a case officer in the next couple of weeks.
Step 7 – Just one week after that an email advised me that our application had been rejected:
“The Commission has rejected the application as the proposed CIO governing document includes a regulated amendment from the memorandum and articles of the company. The amendment identified is;
Additional trustee benefits clause have been included in the proposed CIO governing document: the Charitable Company will need to seek the necessary consent and make the amendment to its governing document prior to an application to convert. Once this process is completed a new online application to convert needs to be submitted.” So, despite trying not to alter from our M&A we had overlooked that the model CIO constitution is more lenient in the stated permissible trustees benefits. Therefore we have to amend our existing M&A before reapplying.
Step 8 – Once again, I phoned the Charity Commission to confirm that we had correctly interpreted their message. We had, but the call did clarify that we should submit our proposed changes to the trustee benefits clause to the Charity Commission for prior approval, before calling an extraordinary general meeting to approve these changes. The changes I submitted were lifted from the wording of the model CIO constitution. I submitted this application at the end of July.
Step 9 – Two weeks later, I have confirmation that the Charity Commission will accept the proposed changes. So now we have to arrange an extraordinary general meeting to approve those.
Throughout the process the Charity Commission has been very helpful, they can be contacted for general enquiries on 0300 066 9197.
Step 10 – It has been raised that another key reason for wanting to become a CIO may be that the accounts can then be prepared on a cash basis (if the turnover is less than £250k). This means the reports will show only receipts and payments made within the financial year, with no adjustments for money owed to or by the charity at year end. This can make the accounts easier to understand (although accountants will argue differently, that these cash accounts fail to represent all resources used – such as depreciation of fixed assets!)
Step 11 – Special resolution fails!!! In our defence, it is not immediately clear from the Memorandum of Association what you need to do to pass a special as opposed to an ordinary resolution. What you need to do is give all members 21 days notice of the EGM and get approval of at least 75% of members. This is laid down in company law. It is tricky to get 75% of members at a meeting, but fortunately they can vote by proxy (Companies Act 2006) “A member of a company is entitled to appoint another person as his proxy to exercise all or any of his rights to attend and to speak and vote at a meeting of the company.” Please note that a proxy form must be completed for this to be valid.
So we planned another Extraordinary General Meeting called for the end of November!
March 2019 Update
Step 12 – With a significant number of proxy votes and 9 members present the resolution to alter the wording of the trustees benefit clause was passed. This change was then registered at Companies House and the Charity Commission.
Step 13 – After these changes had been registered the application to convert to a CIO was resubmitted at the start of January 2019.
Step 14 – 2 months later we received a request for the scanned, signed copies of the special resolutions. (We had previously submitted unsigned copies). These have now been submitted.
April 2019 update
Step 15 – A short email from the Charity Commission has advised that our application to convert to a CIO has been successful!
Step 16 – The public register of charities will update the charity’s records to reflect the conversion in the next 24 to 48 hours
I hope this blog of the process has been interesting and useful for you, and shown how it is the details which have to be right and can prove an obstacle.
Leeds Community Accountant