Kelly Sleight examines the differences between the two main legal structures a new social good body may consider

It may not be an inspiring topic, but the structure of your organisation is hugely important. In a previous blog I highlighted the rise and rise of the Scottish Charitable Incorporated Organisation (SCIO). Here, we put it head to head with one of the other main contenders, the Community Interest Company (CIC).

In the red corner

The SCIO is different from other legal forms since it is neither a company nor subject to specific company law rules. It does though have a separate legal personality from that of its charity trustees, mirroring the protections afforded to directors by a company limited by guarantee. It is regulated by one single body – the Office of the Scottish Charity Regulator – rather than by both the Registrar of Companies and OSCR.

From a governance perspective, every SCIO must have a constitution covering the basic elements of governance. As well as complying with the basic criteria in relation to name, constitution and principal office (which must be situated in Scotland), the key condition which must be satisfied is the charity test.

In the blue corner

CICs are limited companies which operate for a social purpose. As a company, the CIC has separate legal personality and the directors have protection from liability. To become a CIC, a company must be for the benefit of the community and state this in its articles of association. A community can embrace either the population as a whole or a definable sector or group of people either in the UK or elsewhere.

The term not for profit, which is often used, can be misleading. CICs are very much for profit as long as it is invested in the community and is not used solely for the benefit of private investors.

It must have "CIC" or "Community Interest Company" as part of its name. This badge indicates that the company is being run for social purposes, which can attract grant funding and private investment. The key element of a CIC is the asset lock, which prevents the assets and profits being distributed, except as permitted by legislation.

Tale of the tape: 5 key differences

• SCIOs are charitable corporate entities, but not companies. CICs are companies with social purposes, but not charities. (A charity would have to give up its charitable status to become a CIC).
• SCIOs are regulated by the Office of the Scottish CharityRegulator (OSCR) only. CICs are regulated by Companies House and the CIC Regulator.
• SCIOs must pass OSCR's charity test. CICs must pass the community interest test - a lower hurdle.
• SCIOs receive tax benefits. CICs do not receive tax benefits.
• SCIOs operate for charitable purposes and must benefit the community. CICs operate for the benefit of the community.

And the winner is … a split decision

For those creating a new charity, the SCIO may prove attractive primarily because trustees and members need only be concerned with one regulatory and legal regime. Charitable status can also attract the confidence of lenders and advantageous tax treatment.

Where an organisation seeks to pursue social purposes, but wishes to structure itself in a way that is more flexible with the opportunity to pay limited sums to its investors and director, the CIC would be appropriate. However, it is essential before creating a CIC you have a clear picture of the community you intend to serve.

In the end, the decision is in your own hands.

Kelly Sleight is a solicitor at Harper Macleod and advises many charities and social enterprises on structures, governance and compliance issues