Most CICs that look at charitable status are looking at it for the same reason. Grant funding is hard to reach. Trusts and foundations will not consider you, some public sector work assumes charitable status, and Gift Aid is not available. The trading income that was supposed to cover everything is covering less than it did.
Conversion is possible, and there are three routes. But it is worth knowing at the outset that CIC status is a one-way door. A CIC cannot revert to being an ordinary limited company. The only ways out are to dissolve it or to become a charity, so the decision you are making is more final than it looks.
If you are weighing charitable status and want an honest read on whether it fits your organisation, our charity setup and registration support starts there rather than with the forms.
What you are actually giving up
Take this part seriously before the mechanics, because it is where conversions come unstuck.
CIC directors can be paid for being directors. Charity trustees generally cannot. That single difference ends more conversion conversations than anything else, and it is not a technicality you can draft around; a trustee being paid for the trustee role is exceptional, temporary and usually needs Charity Commission authority. Our guide to whether a trustee can be paid to work for the charity sets out what is and is not possible.
Dividends go. A CIC limited by shares can pay capped dividends; a charity cannot distribute profit at all.
Control changes. A CIC can operate with a single director. A charity is run by a board that holds the direction collectively, and the Commission will expect enough trustees to make that real; your governing document will set the minimum. Founders who have been running a CIC largely on their own judgement find this the most uncomfortable part.
And the regulation steps up. Charity law, the Charity Commission, public benefit reporting, and a filing regime with real consequences if you miss it. Our guide to what happens when you file late covers that side.
What you gain is real too: Gift Aid, access to grant funders who will not look at a CIC, charitable rates relief, certain VAT reliefs, and the standing that charitable status carries with the public. Whether that outweighs what you lose depends on where your income is going to come from over the next five years, not on where it came from last year.
One threshold question before anything else. Your purposes have to be exclusively charitable in law. A CIC passes the community interest test, which is a lower bar than charitable purpose. Plenty of genuinely good CIC activity is not charitable, and if that is your position, none of the three routes is open. Our guides to charitable objects and public benefit set out the test you have to meet.
Route one, converting directly to a CIO
This is usually the right answer for a small CIC, and it is the newest of the three. The legal basis is section 234 of the Charities Act 2011, which allowed regulations to be made for converting a CIC into a CIO. Before those regulations, the only option was to build a new charity and close the old organisation.
The Commission’s guidance sets out four steps.
- The members pass a conversion resolution confirming that they wish to convert the CIC into a CIO under the Conversion Regulations. The Commission’s page describes this as the directors producing a resolution that confirms the members’ wish; in practice this is a special resolution of the members, and the CIC Regulator directs applicants accordingly.
- Adopt and complete one of the Commission’s model CIO constitutions, replacing CIC with CIO in the name. For most converting CICs, this is the foundation model, where the trustees are the only members; but check your articles and membership register first, because if your CIC has members who are not directors, adopting the foundation model removes their vote. That is a governance decision to take deliberately rather than inherit.
- Pass a second resolution, also a special resolution, confirming that the members have adopted the proposed CIO constitution.
- Apply to register as a charity, submitting both resolutions, the proposed constitution and a completed trustee declaration form. In the Special Circumstances section, say that you are a CIC applying for charitable status as a CIO, and name the CIC.
One detail catches people out. Section 8 of the model constitution deals with whether members would have to contribute to the CIO’s assets if it were wound up. If each CIC member’s liability is more than £10, you must select option 2 and enter an amount – and that amount must not be less than the figure that applied to the CIC’s members. At £10 or less, you can select option 1. Most CICs are at £1 or £10, so this is usually straightforward, but getting it wrong is a rejection point.
After you apply, the Commission checks whether you can register as a charity. If you can, it gives Companies House what it needs to confirm to the CIC Regulator that you wish to convert. Companies House then cancels the CIC registration, and only then does the Commission register the CIO.
One thing to be clear about before you start. The steps above are the exit route from CIC status, and the CIC Regulator can tell you what they are. What neither the Regulator nor Companies House can tell you is whether your purposes are exclusively charitable; that question belongs to the Commission, it is decided on the registration application rather than on the conversion paperwork, and it is where these applications fail. Objects, activities, who benefits, public benefit, evidence of need and the composition and independence of the board are all tested there, and none of it appears on the conversion checklist.
The appeal of this route is that the organisation continues. There is no transfer of assets, no new bank accounts, no novation of contracts. Suppliers, funders and staff need to be informed about the change of name and status, not re-papering.
Two cautions. The Commission’s page on this route has not been touched since it was published on 31 August 2018, and it is brief – four short steps for a process involving three separate bodies. And where a CIC has share capital, expect the shares to need to be fully paid up before conversion; that requirement appears in the parallel routes for charitable companies and registered societies, and reaches CICs through the Conversion Regulations. If your CIC is limited by shares, take advice rather than assuming.
If you are unfamiliar with what a CIO actually is, our guide to registering a CIO covers the structure in full.
Route two, converting to a charitable company
A CIC can instead cease to be a CIC and become a charitable company, keeping its company registration and its company number.
The CIC Regulator’s step-by-step guidance sets out what is required. The company passes special resolutions stating that it is to cease to be a community interest company, altering its articles as appropriate to a company with exclusively charitable purposes, removing the statement that it is a CIC, and changing the name to one without a CIC designation. You amend the articles in line with those resolutions, using the Charity Commission’s model articles for a charitable company. Form NE01 notifies Companies House if you want exemption from using “limited” in the name. The documents go to the Registrar with a cheque for £30; there is no fee for the conversion itself, but there is a £30 fee for the name change.
The step that makes this route slower than it looks is statutory. Under section 54C of the Companies (Audit, Investigations and Community Enterprise) Act 2004, the application must be accompanied by a copy of the special resolutions, a copy of the amended articles, and a statement from the Charity Commission that, in its opinion, if the changes take effect, the company will be an English charity and will not be an exempt charity. The Registrar cannot register the resolutions without it.
Getting that statement means satisfying the Commission that your purposes are charitable; the same substantive scrutiny as any other route, with the Companies House layer on top. There is no procedural shortcut here.
Two constraints worth knowing. A CIC limited by shares cannot convert to a charitable company limited by guarantee, because company law does not permit a company to switch between the two. So if your CIC is limited by shares and you want a guarantee company, this route is closed, and you are looking at route three.
And there is a minority protection most people have never heard of. Under section 54A, where special resolutions have been passed with a view to ceasing to be a CIC and becoming a charity, an application can be made to the court to cancel them; by holders of at least 15% in nominal value of the issued share capital, or, where the company is not limited by shares, by at least 15% of its members, or by holders of 15% of qualifying debentures. Anyone who consented to or voted for the resolutions cannot apply. If your membership is not united behind this, that is a real risk rather than a theoretical one.
If you take this route, our guide to setting up a charitable company covers what running one involves – two regulators, two filing deadlines, and accruals accounting under the SORP.
The route matters less than whether your purposes are charitable at all.
Most CIC conversions that fail do not fail on procedure. They fail because the activities that pass the community interest test do not amount to exclusively charitable purposes, and nobody tested that before the paperwork started. A free clarity call will tell you whether you have a conversion or a rewrite on your hands before you spend anything on either.
Route three, new charity, transfer, close
The Commission puts this clearly in its guidance on changing charity structure: you can change a CIC into a charity by setting up a new charity, transferring the CIC’s assets to it, then closing the CIC.
This was the only option before 2018, and it is still the answer in some situations – where the CIC is limited by shares and a guarantee structure is wanted, where the existing articles are too far from charitable to amend cleanly, or where the CIC has liabilities or history the new organisation should not inherit.
It is the most work by a distance. A new charity registered from scratch. Assets transferred, which means new bank accounts, contracts novated or re-let, funders informed and in some cases re-approached, employees transferred with TUPE and any pension liabilities to be worked through. Then the CIC dissolved.
The asset transfer is not a private matter either. A CIC’s assets are subject to the asset lock, and transferring them for less than full consideration engages the CIC Regulator; so the transfer and the closure are connected steps rather than separate ones. Take advice on this specifically. It is the part of route three where good intentions and the asset lock most often collide.
Our guide to registering a charity covers the application itself, and why applications get refused covers what to avoid.
Which route fits
For most small CICs, route one. It keeps the organisation intact, it avoids transferring anything, and a CIO has one regulator rather than two.
- Route one, direct conversion to a CIO; a CIC limited by guarantee, purposes clearly charitable, no reason to keep the company structure.
- Route two, conversion to a charitable company; you need the company framework, usually for a trading subsidiary, a lender, or a commissioner who expects it. Not available if you are limited by shares and want a guarantee company.
- Route three, new charity and transfer; your articles or share structure block the other two, or there is history you would rather leave behind.
Whichever you choose, the purposes test is the same, and the Commission applies it the same way. The routes differ in mechanics, not in the substance of what has to be proved. Our guide to choosing a charity structure compares what you would be converting into, and what trustees are responsible for sets out what your directors are taking on.
Before you start
Four things to get straight, in this order.
Check your Companies House record first – whether the CIC is limited by guarantee or by shares, and whether any shares are unpaid. That single fact rules routes in or out before anything else is decided.
Test the purposes honestly against the charitable purposes in the Charities Act, not against how worthwhile the work feels. This is where conversions fail.
Work out who will be trustees and whether anyone currently paid as a director expects to continue being paid. If they do, resolve it now rather than at application stage.
Make sure your Companies House and CIC Regulator filings are up to date, including the annual CIC report if one is due. A conversion application from an organisation behind on its accounts gives everyone involved a reason to pause, and our guide to charity accounting covers what the regime looks like afterwards.
And check the name. It has to lose the CIC designation, and the Commission will assess the new name for confusion with existing charities, which is important to check on the register before you settle on one.
Then expect it to take time. Charity registration applications currently sit in a queue for months before a case officer picks them up, and a conversion adds two further bodies to the sequence. Our guide to what happens after you apply sets out what that wait involves.
Conversion is a governance change wearing an administrative costume.
The forms are the smallest part. Working out whether your purposes are charitable, who the trustees will be, how the people currently paid will be treated, and which route your share structure actually permits; that is the work, and it is worth doing before a single resolution is drafted. Our charity management and governance support covers the whole of it.
