January 2017 – Charities becoming SCIOs (Scottish Charitable Incorporated Association)

Author: Mitchells Roberton
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  • There are over 24,000 charities registered with the Office of the Scottish Charity Regulator (“OSCR”). These come in all shapes and sizes and are constituted in various forms.
  • In the main, charities will be set up in the form of a “trust” or an “unincorporated association” or a “company limited by guarantee” or a “Scottish Charitable Incorporated Organisations”.
  • The Scottish Council for Voluntary Organisations (“SCVO”) comments on the different forms for charities as follows:

“The type of legal structure which is right for your organisation will depend on the scale of your plans and the level of risk involved. For example, whether you intend to take on staff and run premises are important questions which are likely to influence your choice of structure…

The legal structure of your organisation is quite separate from its charitable status. Voluntary organisations can be either incorporated or unincorporated.

 … the most common legal structures for Scottish voluntary organisations, all of which can register as a charity [are]:

Scottish Charitable Incorporated Organisation [or SCIO]

The SCIO has been purpose built for the charity sector in Scotland and provides limited liability.

Voluntary or Unincorporated Association

The simplest and least bureaucratic form of legal structure, with low set up costs.

Company Limited by Guarantee

A clear legal entity separate from the people involved in it, but it must comply with UK Company Law.

Trust

Best suited to small groups of people who want to manage money or property.”

  • Sometime charities which were originally set up in one form wish to change to another form: most commonly perhaps this occurs when a charity that is in the form of a “trust” or an “unincorporated association” wishes, instead, to become a “Scottish Charitable Incorporated Organisation” or “SCIO”.
  • OSCR’s guidance on these matters says:

“On average OSCR receives 12 applications a month from unincorporated charities (unincorporated associations and trusts) wanting to change legal form to a SCIO or a Company. The decision to incorporate is becoming more common for a number of reasons:

Unincorporated bodies [e.g. voluntary  associations or trusts], unlike companies and SCIOs, do not have legal personality. As a result, unincorporated bodies cannot enter into contracts in their own name, meaning the charity trustees have to do so and may be personally liable if something goes wrong.

An unincorporated body may decide to change to a SCIO or company because it employs staff or to secure funding streams.”

  • Until recently, when an unincorporated association or trust wanted to change into the form of a SCIO the mechanics of doing so involved a process which (superficially if not technically) appeared to involve a conversion of the charity from its original form into a SCIO.
  • As from 1 December 2016 OSCR has revised the mechanics of making such a change because the old system, appearing as it did to function by way of a conversion of the old form of charity into a SCIO, muddied the waters as to what was really happening and so caused a certain amount of confusion. In reality the process involves the creation of a new body – the SCIO – and the transfer of assets and liabilities to that new body by the “old” charity followed by the winding-up of the “old” charity.
  • The new procedures are more transparent in those respects and so designed to avoid the confusion which sometimes arose in viewing things as a “conversion” of the old into the new.

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Kathryn Bready: KathrynB@mitchells-roberton.co.uk

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