Ceasing to be a Charity
Charitable status is not a legal structure in itself. It is more like a ‘badge of credibility’, the icing on the cake or the license plate on the car, something which enhances the public profile of your group.
In Scotland, charitable status can only be gained by successful registration with the Office of the Scottish Charity Regulator (OSCR) and it refers exclusively to your group’s entry on the Scottish Charitable Register.
If your group loses its charitable status or chooses to give up its charitable status, OSCR will remove your group’s entry from the Scottish Charity Register and you will then cease to be a charity.
If your community group takes the decision that it wants to give up its charitable status, your Charity Trustees will need to first make a formal application to OSCR. Removal should take place within 28 days of OSCR’s receipt of your application.
It is a legal offence in Scotland for a group to refer to itself as a charity if it is not on the Scottish Charity Register.
If your group is intending to still exist after giving up or losing its charitable status, you will be given clear direction from OSCR that you must cease to refer to the group as a charity.
What happens to the charity’s assets?
The Charities and Trustee Investment (Scotland) Act 2005 sets out guidance for what will happen to the assets (property, cash etc) of a charity after removal from the Register.
If your group had charitable status, these assets will have been acquired on the basis that they were being used for the charitable purposes of your group as set out in your constitution or governing document.
As part of the Charities and Trustee Investment (Scotland) Act 2005, your Charity Trustees have a legal duty to ensure that these assets remain ‘locked’ for those purposes, even after dissolution.
Part of any winding up or dissolution process will commonly include the distribution or liquidation of assets. This means that any distribution of assets after your group ceases to be a charity, will need to be to another charity who will continue to use them for similar charitable purposes. The assets must not be paid or distributed to any of the Charity Trustees as individuals.
These requirements should be reflected in your group’s dissolution clause in your constitution.
If your group is seeking to give up its charitable status or if OSCR are removing your group from the Scottish Charity Register, the value and nature of your group’s charitable assets will be considered.
These include assets:
acquired whilst the charity was on the Scottish Charity Register
purchased with income accrued whilst the charity was on the Scottish Charity Register
Most of these assets (including any income earned from them) will continue to be 'locked' for the charitable purposes which were set out in the group’s entry on the Register immediately prior to its removal.
Monitoring Requirements after ceasing to be a charity
If your group’s assets are ‘locked assets', your Charity Trustees may still have an ongoing legal duty to report to OSCR – at least until the assets are distributed to another charity.
This can sometimes take a couple of years, during which the original Charity Trustees will still have a legal duty to:
keep proper accounting records for at least 6 years
prepare a Statement of Accounts in accordance with accounting regulations, including external scrutiny
send a Statement of Account to OSCR