Scottish Charitable Incorporated Organisation (SCIO)

A Scottish Charitable Incorporated Organisation is a legal structure which has been purpose built for the voluntary sector in Scotland. It provides limited liability and a separate legal identity to organisations that want to become charities but do not want or need the complex structure of company law. This means that even the smallest charity can access the benefits of incorporation – including limited liability and legal capacity.

It is only available to charities with a principal office in Scotland and is regulated by OSCR and subject to the Charities and Trustee Investment Act (Scotland) 2005.

As such, and assuming the SCIO operates according to the terms of its constitution, 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 the SCIO, such as funders and for creditors.

Unlike charities that are also companies limited by guarantee, SCIOs will have OSCR as a single regulator, one set of accounts and one annual return.

The SCIO provides another option for bodies wishing to register as charities, and for existing Scottish charities wishing to adopt a different constitutional form which offers more robust protection.

The downside of the SCIO is there is no flexibility in ancillary trading limits out with the scope of the charitable purposes. This can restrict income generation opportunities. However, a SCIO can own a trading subsidiary, and this offers the highest levels of protection covering all aspects of the group.

Once you become a SCIO all assets of the organisation become assets of the SCIO and therefore on dissolution all assets must be redistributed in a manner that is not for the benefit of members. This is true also for Charities. If business undertakings are transferred then they must be transferred to another SCIO, which is not always a desirable or practical outcome.

A SCIO offers no route to change structure, once the organisation becomes a SCIO they are in effect locked in.

Two Tier or Single Tier?

There are two structures available for the SCIO, two tier and single tier.

The two tier structure is similar to that of a voluntary association and a company limited by guarantee where it is the membership of the organisation that appoint trustees and have decision making powers.

The single tier structure is similar to a trust in that the trustees appoint new trustees and don’t have to answer to a wider body.

Both structures require at least two members (in the single tier SCIO the members and the Trustees are the same people), must have at least three trustees and must keep a register of all its members and trustees.

Advantages

• Provides the key benefits of becoming a company, such as a defined legal entity and limited liability whilst removing some of the associated burdens (this liability protection may not apply where they have acted recklessly, negligently, illegally or acted out with their powers and in bad faith).

• Can hold property, enter into leases and other contracts, employ people, etc, in its own name.

• Less administration – no requirement to notify any regulator about appointments or resignations of board members.

• Unlike company law, where the volume of legislation and case law can be overwhelming, the law relating to SCIOs is self-contained and very manageable.

• It provides creditor protection and reassurance for those entering into contracts.

• Only needs to be registered with OSCR, unlike a charitable company, which also needs to register with Companies House.

• Is subject to the same accounting thresholds as unincorporated charities, so may not have to produce fully accrued accounts.

• Generally regarded by funding bodies and public agencies as a more ‘stable’ structure than a voluntary association.

Disadvantages

• Existence is dependent upon charitable status. Loss of charitable status would mean that the SCIO would cease to exist.

• Some changes must be notified to OSCR, and some require prior consent, eg change of name or charitable purposes.

• Members are subject to some of the same duties as charity trustees, specifically, they must act in the interests of the SCIO, and seek, in good faith, to ensure the SCIO acts in a manner which is consistent with its charitable purposes.

• There is a duty to keep and supply a register of charity trustees and members (if an organisation has a lot of fluidity in its membership eg a Student Union, a SCIO may not be the most appropriate legal form).

• Cannot convert or amalgamate with non-SCIO, though assets can be transferred to a non-SCIO charitable organisation.

How is it Governed?

There is no standard format for a SCIO constitution, but some basic elements are required:

• a SCIO should have two or more members and three trustees (in the case of a single tier SCIO the members can also be the trustees)

• The requirement to keep a register of members and trustees

• it should have the name, purposes, a registered office in Scotland, and include any restrictions on powers

• it should list meeting procedures (convening, recording, quorum, voting, resolution)

• it should list membership rules (eligibility, appointment, withdrawal) and trustee rules (appointment, withdrawal, remuneration restrictions, conflict of interest).

• it should list the purposes for which surplus assets may be used on dissolution (generally, such surplus assets should go to another charity with similar purposes)

Charitable Status?

A SCIO can only be a charity. OSCR is the regulator of a SCIO’s legal form, not just its charitable status. Removal from the Register equals dissolution.
Does it have a legal status, distinct from those who run it?

Yes. A SCIO can hold property, enter into leases and employ people in its own right. Title to land and buildings will be held in the name of the SCIO (an advantage in terms of succession). Members’ and trustees’ liability is limited in most cases, and they are not liable to contribute if the SCIO is wound up.

How to become a SCIO

If you have decided that the SCIO structure is right for your organisation, you should first decide whether you want to be a two-tier or single-tier SCIO. Once you know which structure of SCO you wish to use, you should then look at developing a suitable governing document.

Once you have drafted your constitution, at least two people from your group will need to make the formal application to OSCR. They will need to prove that the group satisfies all the requirements for being a SCIO – including charitable purposes and activities which provide community benefit (the two-part charity test).

Converting to a SCIO

Incorporated organisations with existing charitable status (e.g. a charitable CLG), and Industrial and Provident Societies (IPS) may apply to OSCR to convert to becoming a SCIO. They will need to satisfy the requirements of the two-part charity test and have a suitable constitution (governing document).

Most suitable for:

The SCIO structure is most suitable for groups with charitable purposes who:

• plan to own or manage assets, including running an office or property, employing paid staff, or entering into contractual agreements

• want the protection of limited liability that comes with being an incorporated body

• have a small to medium sized membership that they can keep a register of