Charity Bites: Introducing Scottish Charitable Incorporated Organisations

Background - what is an SCIO, and why is it needed?

Scottish charities can be formed using a variety of legal structures, but those which carry on operations themselves (rather than providing funding for other charities) generally fall into two categories - either unincorporated organisations, or companies limited by guarantee. However, whilst each type of legal entity delivers its own distinct benefits, it is fair to say that each of them also has its own drawbacks.

Unincorporated organisations tend to be simpler to set up and run, and have no formal registration requirements; however, for most legal purposes they are not recognised as legal entities in their own right and do not offer members of their management committees the benefit of limited liability. This can raise issues in entering into property leases and major contracts - but the major problem arises in relation to the risk of personal liability for management committee members, and that can be particularly problematic where they are faced with major pension deficits. Also, as unincorporated associations are seen as a more informal structure, this can be unattractive to potential funders, partners and commercial lenders.

Companies limited by guarantee offer the protection of limited liability and the advantage of a more formal, stable structure; but there are significant statutory obligations to comply with, with the need to meet the requirements of Companies House as well as the Office of the Scottish Charity Regulator (OSCR) - in relation to initial registration and then on an ongoing basis. This can present quite a heavy burden, particularly for smaller organisations, in terms of set-up costs and ongoing administration.

The plans to develop an alternative legal entity to address these issues date back to ideas developed in England and Wales round what was referred to as a "Charitable Incorporated Organisation (CIO)". The Scottish Charity Law Review Commission ("the McFadden Commission") took up these ideas, and recommended that a similar model should be made available to Scottish charities. The draft Charities and Trustee Investment (Scotland) Bill included provisions to create the Scottish Charitable Incorporated Organisation (SCIO). In the course of the consultations on the draft Bill, it was evident that there was strong support for a tailor-made corporate body for charities in Scotland that was as clear and straightforward as possible. I served on an expert panel which...