Answer: CIOs have proved to be a popular vehicle for new charity formations since their introduction following the Charities Act 2011. Over 50 per cent of new charity registrations in the last financial year were CIOs. They offer corporate status with the Charity Commission as a single regulator and are subject to charity law. In contrast, charities that are companies limited by guarantee, need to comply with two separate regulatory regimes (Registrar of Companies and the Charity Commission) and both company law and charity law.
The Charity Commission does not operate a public register of charges over the property or undertaking of CIOs. If a charity has unsatisfied registered charges, it may not be appropriate for it to convert, unless these can be satisfied before the application is made. In addition, the Government has warned trustees to take advice on the impact of conversion on any pension scheme operated by the charity, as well as on any TUPE issues arising from the conversion (although these are likely to be limited as the same entity remains the employer).
Funding could also be affected if the corporate body has entered into any secured or unsecured loans, as conversion could trigger a breach of covenant under the loan documentation. If your charity has any outstanding unsecured loans, it is important to take advice and discuss the proposed conversion with the lender before proceeding.