The accumulated pressures of the pandemic, the cost-of-living crisis and the impact of world events on the national economy have created a strain across the most vulnerable, which has landed firmly on the doorsteps of charitable organisations. Charities and voluntary and community organisations deliver more than £14bn worth of public services annually, and with direct Government support declining, the first half of 2025 has seen over 20 charities close, with other major charitable organisations either merging or making wholesale redundancies.
It is no surprise that with this economic backdrop, charitable organisations are looking for ways to combine resources, reduce costs and increase operational efficiency in order to survive and continue to support beneficiaries. In this guide, we take a look at the benefits of restructuring, the regulatory requirements charity secretaries need to be aware of, and the common pitfalls or mistakes made when restructuring a charity.
Why restructure your charitable organisation?
Merger with another charity, or via the sale of assets, can strengthen a charity’s balance sheet. Finding cost savings or combining efforts with another organisation can prove an effective way to free up resources and continue to provide support to the community. Restructuring following a merger with another charity, or a sale of assets, can release enough equity to continue, but will require a new approach for staff and stakeholders. Similarly, changing the charity’s organisational structure will have an operational impact, often with the removal of redundant roles or combining resources in low-impact areas of the business.
When it comes to reorganisation, consideration needs to be given to the legal form of the charity; a change in form may make sense. Charitable trusts or unincorporated associations, for example, can’t enter into contracts or control investments in the name of the charity; instead, two or more trustees are required to hold land for the charity, and trustees are personally liable for what the charity does. When considering the future of the charity, restructuring to become a corporate body may be required: its trustees are not personally liable for the performance of the charity, the charity can pay employees in its own name, and it can hold property or enter into commercial contracts. This can provide stability and further protection for trustees in a time of economic instability.
Choosing your Charitable Organisational Structure
Changing the legal structure of your charitable organisation will largely depend on the charity’s governing document and how it currently operates or intends to operate in the future. There are five types of charity structure (see here), and when restructuring, it is important to be clear what the operation of the new structure will encompass.
Unincorporated Associations and Charitable Trusts
These are both unincorporated organisations which differ based on the width of the membership. An unincorporated association has a constitution as its governing document, and a charitable trust has a trust deed as its governing document. Both are required to be registered with the Charity Commission, with the main difference being that charitable trusts make grants but not any other type of work and have a low number of staff.
An Association Charitable Incorporated Organisation (CIO)
Charitable organisations considering restructuring should consider CIOs, especially if trustees are concerned by the risks they face or, in the case of charitable trusts, they wish to move property ownership and commercial contracts into the charity rather than remain with trustees. Governance and administration adopt a more structured framework as a CIO.
If the charity has a wider voting membership than the trustees, then an Association CIO is the correct choice. Association CIOs must have the following elements:
- The CIO must have a constitution in place of the Articles of Association
- It must be registered with the Charity Commission
- CIOs must keep a register of members and trustees
- It must submit accounts and returns to the Charity Commission annually
A Foundation CIO
A Foundation CIO is the second form of CIO. Whereas the Association CIO is a body incorporated with the Charity Commission (as opposed to Companies House) its membership is typically composed of trustees and non-trustee charity members. A Foundation CIO is similar to an Association CIO, however, the trustees are the only members. The Foundation CIO model is appropriate for charitable organisations that wish to be a corporate body but not have a wider membership than the trustees. As with an Association CIO, the governing document must be a constitution rather than articles of association, must be registered with the Charity Commission and must submit annual financial reports to the Charity Commission.
A Charitable Company
CIOs are incorporated through their registration with the Charity Commission; however, a company incorporated by guarantee is another legal form often adopted for charitable purposes, often where there is a (commercial) trading arm to the charity’s activities; these entities are incorporated via registration with Companies House. Charitable companies are also suitable for organisations with a wider membership than trustees, and they are also considered corporate bodies. A charitable company differ from an Association CIO with articles of association as its governing document rather than the constitution specified by the Charity Commission. A charitable company limited by guarantee cannot distribute profit or surpluses to members and must operate in the best interests of the charity rather than its members or trustees. A charitable company must also be registered with both the Charity Commission AND Companies House. As with the CIO, it is required to submit annual financial statements.
Restructuring to the Correct Organisational Structure
For charities looking to move to a corporate position from an unincorporated one, selecting the correct entity structure will depend on the charity’s current setup. For instance, unincorporated associations are most likely to transfer to an Associated CIO as they have a wider membership than trustees and a constitution. Charitable trusts are best matched to a Foundational CIO structure, as this is tailored to charities relying on a small number of trustees to make decisions. Both will provide the benefits incumbent with an incorporated charitable organisation, including reduced liability for trustees and a corporate body for contracts and property. Charities with trading arms might have reached the scale where it makes sense to adopt the private limited by guarantee company model.
The Charity Restructuring Process
There is a clear and defined process to follow when restructuring your charity. As the Charity Commission is involved, contact them from the very beginning of the process to ensure you’re compliant at each stage and avoid costly delays.
MSP Company Secretarial can help you at every stage of the restructuring process, from the time you are contemplating a change to discuss the options and routes to take, including completing and filing documents with the Commission to ensure a smooth transition, or registering with Companies House. Click here to speak to us about charity restructuring.
Trustee Approval
Before changing the corporate structure, there must be a confirmed decision by trustees that this is agreed to be in the best interests of the charity. The Commission has provided clear guidance on how to make a decision that acts within the power of the trustees, is in good faith and in the interest of the charity, and has managed all conflicts of interest that might impede an unbiased decision.
Once this decision has been made, it is advised to involve the Charity Commission, and company secretarial service providers such as MSP Company Secretarial should also be involved early, to maximise the impact of support.
Review the Charity’s Purpose, Membership and Governing Documents
The Charitable Incorporated Organisation will replace the charity’s structure, and as such, the assets of the charity will need to be transposed across to the new CIO. This requires the purpose of the charity to match that of the CIO, which means this is a good time to review the purpose and adapt it to match the future strategy and direction of the charity.
Making changes to the purpose will also require authorisation from the Commission, so ensure you take this step before registering as a CIO.
The governing documents will also require a review, particularly to ensure key rules are transferred correctly to the new CIO’s constitution.
The charity’s membership, if one exists beyond the trustees, must also be informed of the change to the structure. If members have voting rights, then they will need to approve decisions regarding changes to the purpose or transfer of assets.
MSP Company Secretarial can support your charity with detailing the purpose, minuting changes and completing filings with the Commission. Click here to find out more.
Registering the CIO
A new CIO must follow one of the model constitutions provided by the Commission. Changes can be made to the model chosen, but they have to be clearly highlighted to the Commission, and our advice is to work as closely to the boilerplate documents as possible. MSP Company Secretarial can help with selecting the appropriate CIO constitution and working with the Commission on any changes required.
Once you have chosen the right constitution model, you will need to create a name for the charity within the Commission’s rules and one distinct from other organisations on the charity register.
Finally, it’s time to register the charity with the Charity Commission.
Registering as a charitable company
It may be time for a charity undergoing change to consider incorporating as a private company limited by guarantee. Many of the considerations are similar to those mentioned above, but the private limited company needs to be registered with Companies House and needs to adopt the reporting requirements of the Companies Act 2006. These requirements include:
- Registering Articles of Association (the company’s principal governance document)
- Filing accounts appropriate to the size of the company
- Filing an annual confirmation statement
- Trustees are registered as directors (and have the statutory duties set out in section 170(1) of the Companies Act 2006)
- Registration of members
Registering as a private limited company is an area where MSP Company Secretarial can assist, and can take you through each step of the process, including any registration changes required by the Charity Commission.
Charity Commission Authority and Transfer of Assets
If trustees of the unincorporated charity are carrying liabilities that will be indemnified by the new CIO, or if conflicts of interest cannot be resolved, then authority will be required from the Commission before being allowed to proceed. If neither applies, then the old charity can transfer its assets and liabilities to the new CIO. This requires a transfer date and all documentation completed and filed, including pre-merger declarations if applicable. Once the transfer date is agreed, then funds and properties can be moved from the old structure to the new CIO.
Closing the Original Charity
Once all of the above have been achieved, then the original charity can be closed. If the charity is merging with another organisation, then it is advised to register the merger with the Commission. This will ensure that any gifts, bequests or future benefits will be secured after the merger is completed and the old charity has officially been closed.
Common Issues When Restructuring a Charitable Organisation
Reaching and recording an agreement with members and trustees, resolving conflicts of interest and setting up new organisational structures can create a minefield of potential issues that will delay or prevent the charity from merging or restructuring cost-effectively.
Organisations that don’t involve the Charity Commission early in the process often find they have missed deadlines, skipped required approval processes and failed to complete the necessary filings for governing documents and asset transfers.
Other pitfalls include failing to register mergers and therefore missing out on future bequests, failing to close the original charity and remove it from the register, or non-compliance with registry rules when naming the new charity.
It is always advisable to contract external expert support from organisations such as MSP Company Secretarial. We can ensure the process is followed closely and accurately, and we will liaise with the Charity Commission on key aspects such as creating constitutions and minuting resolutions with members.
Contact us today to find out more.
Restructuring a Charity – In Summary
As charities face increased pressure to meet the needs of their beneficiaries while remaining solvent, restructuring or merging can provide a way to increase organisational efficiency and protect the charity.
A successful restructure will involve tight communication with key stakeholders and employees and a detailed understanding of the close relationship required with the Charity Commission at each stage of the process, particularly where a change in entity form is envisaged. Such changes will require charity secretaries must lead on compliance, governance, documentation and clear engagement both internally and externally.
Corporate Restructuring for Charitable Organisations: Frequently Asked Questions
Why incorporate a charity?
Whether to incorporate or not is a consideration that is often associated with the growth of a charity, particularly as a charity moves away from operating as a trust (only). Incorporation (either as a CIO or as a private limited company) gives legal personality to a charity, allowing it to become bound by agreements as a legal person, and limits the liability of the trustees. The activities and the nature of the charity dictate whether a CIO is the best route, or whether a private limited company (limited by guarantee) offer the better vehicle. With incorporation comes the need to adopt specific reporting requirements of the Charity Commission and/or the reporting regimes required by the Companies Act 2006.
Note: CICs (Community Interest Companies) are not addressed in this article. These companies have different requirements – for more details, contact MSP Company Secretarial.
What happens to existing grants and funding agreements when we restructure our charity?
Organisations that have issued grants or funds will require notification in writing of any structural changes to the charity. In some cases, the charity may need to obtain formal approval of the restructure before additional funding can be released. It is advisable to create and execute a clear communication plan with major funding providers before instigating any significant restructuring.
What are the key regulatory filing requirements and deadlines during a charity restructure?
Specific filing requirements will depend on the restructuring approach, but typically, there are fixed timeframes to notify the Charity Commission within, and filing dissolution paperwork for the original charitable entity will also be required. Special resolutions may require filing with Companies House if the organisation is restructuring into a corporate charity. Coordinating between Companies House and the Charity Commission can take more time than planned, and can become a compliance risk. MSP Company Secretarial can provide support to ensure filings are made accurately, in sequence and to deadline.
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