Unincorporated Charity to CIO: Is It Time to Convert?

I have a lot of conversations with trustees who are surprised to find out that their charity isn't actually incorporated.

"But we're a registered charity," they say. "We've got a charity number!"

And they're absolutely right - they are. But being registered with the Charity Commission doesn't automatically mean that a charity is incorporated. Those are two quite different things, and the difference matters more than many people realise.

Last week I co-delivered a webinar for Shropshire Charity Network with Clair Moelwyn-Williams of TCA Accountants, called "Is it Time to Become a CIO?" It was a really engaged session with some brilliant questions from trustees who were already exploring the possibility of incorporating.

But what I've realised through my work more widely is that many trustees don't actually know that their charity isn't incorporated - and so the question of whether to become a CIO never comes up at all.

So I wanted to share some of the key points here.

Registered doesn't mean incorporated

Many charities started life as unincorporated associations or trusts. Often that's simply how things began - a small group of committed people, a simple constitution and a shared cause.

There's nothing wrong with that as a starting point. But an unincorporated charity doesn't have its own separate legal identity. That means contracts, leases and liabilities can end up sitting with the trustees themselves.

A good first step is to dig out your governing document and check what it actually says you are.

Why it matters as you grow

When a charity is small, this can feel like a fairly remote risk. But charities change.

You might:

• take on your first member of staff

• sign a lease on premises

• buy a vehicle

• accept a large grant or contract

• start planning something bigger

Each of those steps brings more responsibility - and in an unincorporated charity, that responsibility can land with the trustees.

A Charitable Incorporated Organisation (CIO) is a separate legal entity. It can enter into contracts, employ staff and hold assets in its own name, and trustees generally benefit from limited liability.

Trustee indemnity insurance is useful, but it isn't the same thing. Insurance doesn't change your legal structure. Incorporation does.

Is conversion necessary for everyone?

Not always - but most of the time!

If you are a small voluntary grant making trust with no liabilities you may decide to stay as you are. I do, however, think your structure should keep pace with your organisation. If you're growing, employing people, have investments, are managing premises or taking on more risk, it's worth asking the question now - rather than waiting until something goes wrong.

It's a project, not just a form

One of the biggest messages from the webinar was that becoming a CIO is a governance and transition project - not simply a Charity Commission application.

For an unincorporated charity, you don't usually "convert". You create a brand new CIO and then transfer everything across. For a period of time, both organisations will exist side by side.

That usually means thinking about:

• your governance - rather than simply copying your old constitution, check whether your objects, membership and trustee arrangements still work for you now

• what needs to transfer - bank balances, restricted funds, equipment, contracts, grants, leases, insurance, your website and your records

• your funders - some grant agreements will need consent or a conversation early on

• your staff - TUPE is likely to apply, so employees move across on their existing terms, and there are duties to inform and consult (a big thank you to Nikki Hall at Triangle HR for her expert input on this)

• trustee conflicts - trustees moving across gain limited liability, which can create a conflict in the transfer decision, and in some cases Charity Commission authority may be needed

• closing the old charity properly once everything has moved

Clair's input on the finance side was invaluable too - from accounts and financial continuity to making sure nothing falls through the cracks along the way.

It's important to remember that this is a legal process. When assets are transferred from the old charity to the new CIO, there are proper steps that need to be followed, and the Charity Commission does provide some guidance and templates to help. But one of the things I'll always talk through with charities is where further legal advice is needed - and there are some areas where I'd say it's essential. These include land and property, leases, any permanent endowment, mortgages or loans, pension arrangements and any significant contracts. These are the areas where getting it wrong can be costly, so it's really worth getting the right support in place from the start.

Understand, create, transfer, close

In the webinar, we summarised the journey in four stages: understand where you are now, create the right CIO, transfer carefully, and close the old charity.

It can sound like a lot - and it is a process that needs care. But done well, it's also a really valuable opportunity to step back and strengthen how your charity is run.

So… is it time?

Maybe. Possibly... Probably! Or perhaps it's a "not yet".

Every charity's circumstances are different, and that's completely okay. What matters is asking the question and making an informed decision.

If you're a trustee of an unincorporated charity and you're wondering whether now is the right time - or if you missed the webinar and would like to talk it through - I'm always happy to have an initial conversation. You can email me at hello@vhmcharityconsultancy.com.

Strong charities are built carefully, and very often - piece by piece.