Kelly Sleight explains why charities may need to do a constitutional health check before becoming a SCIO

In the four years since the Scottish Charitable Incorporated Organisation (SCIO) structure was introduced for charities in Scotland, the number of charitable organisations incorporating as SCIOs has steadily increased.

In fact, statistics from 2014 indicate that one third of all new applications to Office of the Scottish Charity Regulator (OSCR) for charitable status are for the SCIO structure.

If the number of enquiries we receive from existing charities who are keen to revisit their corporate structure in the new SCIO world is anything to go by, that trend is set to increase.

So why has there been such a rush to become an SCIO?

Perhaps it’s a sign of the times that we live in that charities are turning their thoughts to what happens if things go wrong and the organisation is dissolved. A good legal structure, backed up by a robust constitution, provides better protection for those running charities in a worst case scenario, limiting personal liability.

Is it time for your organisation to revisit and revitalise its charitable structure? To help you decide, here’s a useful recap of the main charitable structures.

Trusts

A trust is governed by a trust deed and involves a number of individuals – or trustees – holding funds and / or property for a purposes which benefits others. The assets are held in trust for a particular person(s) or specific purpose(s).

Advantages: trusts are simple to set up and have a transparent structure in terms of who are the trustees and who are the beneficiaries.

Disadvantages: trusts do not have a legal identity separate from their trustees. This means that the acquisition of property and entry into leases and contracts must be done in the individual names of the trustees and not the trust itself. This provides trustees with little or no protection from personal liability in the event of default.

Companies limited by guarantee

A company limited by guarantee is a separate legal personality from its directors and members and is governed by articles of association. There are no shareholders, profits are not distributed to members and members’ liabilities are limited to a guaranteed sum – usually a nominal £1.

Advantages: the separate legal personality means that contracts are entered into the name of the company and the members and directors do not assume personal liability for them (apart from in exceptional circumstances). A company structure is also familiar to funding bodies and public agencies.

Disadvantages: there are formal registration requirements to be complied with in relation to establishing a company and there are some associated costs in the form of registration dues with Companies House. You also have to meet the administrative burden that comes with being a company, as charitable companies are subject to regulation by both the Registrar of Companies and the Office of the Scottish Charity Regulator.

Scottish Charitable Incorporated Organisations (SCIOs)

A SCIO is a corporate body which, like a company, has a separate legal personality from its members and trustees and can therefore enter into legal arrangements in its own name rather than in the names of the trustees.

Advantages: members of a SCIO also enjoy limited liability in the same way as limited companies, but do not carry the same administrative burdens. SCIOs are solely regulated by OSCR as opposed to dual regulation and a dual legal regime.

Disadvantages: only bodies with charitable status can be an SCIO, if you lose this status then the SCIO would come to an end.

Do you need a constitutional health check?

If your organisation is attracted by the benefits of the SCIO model and / or has not reviewed its constitution in some time, now is the time to act and carry out a constitutional health check. Send us a copy of your constitution and details of what your charity wants to achieve in the future and we will let you know if your constitution is still fit for purpose.

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