Corporate Structures For Charities - The New Scottish Charitable Incorporated Organisation

With effect from 1st April 2011, a charity in Scotland will be able to be established using the new legal form of a Scottish Charitable Incorporated Organisation (an SCIO). The SCIO will be a corporate body able to enter into contracts, employ staff, incur debts, own property, to sue and to be sued. As such, it will provide a high degree of protection against personal liability for its charity trustees. It will also provide some reassurance for those entering into contracts with it, and for creditors.

In Scotland, charities have mainly been established as unincorporated associations or as a trust; or in corporate form by way of a company limited by guarantee.

For those charities which are not corporate bodies there has been concern over the personal liability of trustees. In addition all the members are liable to contribute if the charity is wound up, including making up any deficit in the charity funding if it became insolvent. The lack of legal personality for unincorporated charities has meant that contracts are entered into by charity trustees and there is uncertainty over the enforcement of contracts with unincorporated organisations. This can make dealing with other contracting parties difficult, particularly if they will be creditors. There is no public notification of the dissolution of such organisations or their winding up which can affect the confidence of creditors dealing with these types of organisation.

The traditional solution to these issues is to choose a company limited by guarantee as the charity vehicle. This ensures limited liability for the members and, as a separate legal entity, contracts are all entered into and enforceable against the company itself. However, the significant drawback of a company is that such entities are regulated both by OSCR and Companies House and are subject to all the applicable company law. This is a considerable administrative burden on and expense for the charity and, as a result, despite the apparent benefits often only larger charities are incorporated.

The SCIO is designed to bridge this gap. It offers limited liability and has separate legal personality but is regulated only by OSCR. It has been developed primarily from charity law and OSCR is the regulator of its form as well as its charitable status. It can only exist as a charity and ceases to exist if its charitable status is lost.

Incorporation of an SCIO is by application to OSCR, submitting the proposed details of the SCIO...