SCIO – The Scottish Charitable Incorporated Organisation
What do Anstruther Tennis Club, Glencoe Folk Museum, Cairngorm Mountain Rescue Team and Scottish Police Benevolent Fund have in common? Well, they are all Scottish Charitable Incorporated Organisations (SCIOs). This is a relatively new form of legal entity and at this time there are currently around 1,800 SCIOs registered with the Office of the Scottish Charity Regulator (OSCR) with the numbers growing steadily year on year.
- So what is a SCIO and its advantages?
SCIO was introduced in 2011 and is a legal form which is designed specifically for the charity sector in Scotland.
unlike a trust or unincorporated association, SCIOs have separate legal personality which means that it can hold property, enter into contracts, incur debts, employ people and sue (or be sued) in its own name. With a trust or unincorporated association the charity trustees must transact in their own name on behalf of the charity and therefore risk incurring personal liability for the transactions of the charity;
no contribution is required from its members where there are outstanding amounts owed to creditors on a dissolution or winding up. This contrasts with trusts and unincorporated associations where members will normally have an obligation to contribute where there is a shortfall and unlimited liability;
the SCIO is administered and regulated by one body (i.e. OSCR). A SCIO therefore benefits from being an incorporated body without the need to also report to Companies House; as it is not a company it will not be subject to the detailed restrictions in the Companies Act 2006; and the accounting requirements in preparing a set of accounts is reduced as there is no need to comply with the Companies Act 2006.
- How do you incorporate a SCIO?
To incorporate the SCIO then you must apply to OSCR. The SCIO must be incorporated with at least 2 members and 3 charity trustees, be set up for charitable purposes and have a constitution (i.e. governing document). It is possible for a SCIO to be single tier (i.e. just charity trustees with no other members) or two tier (i.e. charity trustees and members).
It is also worth noting that it will also be possible for existing charities which are trusts, unincorporated associations and companies limited by guarantee to convert to a SCIO.
- Similarities with other charitable bodies
Although a SCIO is a new legal form, it still shares a lot of common elements with other charitable bodies:
it must pass the usual charity test and have a charitable purpose which provides public benefit;
it will be subject to regulation by HMRC for the purposes of obtaining charity relief;
the charity trustees may be personally liable if they behave recklessly, negligently, illegally or outwith their powers as set out in the SCIO’s constitution;
the charity trustees must comply with the same duties as any other charity trustees (i.e. acting with care and diligence, disclosing conflicts of interest and acting in the best interests of the charity etc); and
the SCIO is required to report to OSCR on an annual basis.
- Potential disadvantages
Possible disadvantages of the SCIO include:
there is no pre-approved styles of constitution but the SCIO regulations do set out various matters which must be included in the constitution in relation to governance;
once the SCIO ceases to meet the charity test then the legal entity also ceases to exist. This would not be the case with a company limited by guarantee;
meetings must be held within 15 months of incorporation and every 15 months thereafter;
unlike a company limited by guarantee, it cannot grant floating charges in order to secure debt; and
there may be issues dealing with English grant funding bodies which are unfamiliar with the legal status of a SCIO.
- Accounting issues
With a SCIO the preparation of receipts and payments or accrued accounts depend largely on the body’s income level, with a discretion for charity trustees to choose to exceed minimum requirements if accrued accounts are more suited to the organisation’s operations. This gives the SCIO the flexibility to be not bound by company accounting requirements and prepare accrued accounts regardless of income level but instead which method suits the Charity best.
The SCIO is a welcome addition to the charity sector in Scotland and should be considered by those looking to establish a new charity or existing charities which are trusts or unincorporated associations looking for the advantages of incorporation.
If you are considering setting up a SCIO or have any queries then please contact:
Angus McGuire, Young & Partners LLP – 01383 721 621
Fiona Haro, Thomson Cooper – 01383 628 800
While all reasonable care has been taken in the preparation of this document, no responsibility is accepted by for any errors it may contain. Individual legal and accountancy advice should be sought before considering setting up as a SCIO.