To SCIO or not to SCIO - That is the Question
The Scottish Charitable Incorporated Organisation (SCIO) is a legal entity specifically designed for charities and is increasingly being used in the sector rather than the more traditional forms of Trusts, Companies Limited by Guarantee or unincorporated associations.
SCIOs were introduced in the Charities and Trustee Investment (Scotland) Act 2005, but registration was not possible until the legislation was brought into force in 2011. Since then, charities of every kind have embraced them.
For many charities, the decision to set up as SCIO is a good one, as they’re designed purely for the third sector and often suit modern charities’ needs and ways of operating. OSCR is the sole regulator. This means that unlike a company, which has reporting duties to both the charity regulator and to Companies House, SCIOs only have one set of reporting duties and only one key piece of legislation governing their operation.
Like a company, a SCIO has a separate legal personality, ensuring that, unlike a trust or an unincorporated organisation, it can enter into contracts or hold property in its own right. This also provides protection for trustees and limits their personal liability if the SCIO is wound up.
In order to be a SCIO a charity must have its principal office in Scotland and, like any charity, have a constitution and charitable purpose towards which property and assets will be used.
It must have at least two members, which might include the charity trustees. There are two types of SCIO – a one tier and two tier. In the former, there are simply trustees who are also the necessary members and in the two tier there are trustees and a wider membership. This can be an additional benefit, providing an extra layer of accountability for the trustees.
The two tier SCIO works very well for traditional unincorporated associations (community halls, sports clubs etc), as it provides the opportunity for a membership base who appoint a smaller board to run the charity.
That said, despite the great benefits of SCIOs, they do have downsides and don’t suit every charity.
For example their uniqueness could cause problems for charities that work across borders. England and Wales have a similar body known as CIOs but internationally the concept isn’t well known and we‘re certainly aware of cases where this has resulted in issues.
At the other end of the scale, for very small organisations which might not need to enter into contracts, own property or take on many liabilities, for example a grant making trust, the burden of transitioning to a SCIO might simply be more than its worth.
Becoming a SCIO is a permanent decision, as once the organisation is entered onto the Scottish Charity Register, it can’t convert to another legal form or wind up and pass assets to another charity which isn’t a SCIO.
A SCIO’s existence is also based solely on its charitable status, without which it must cease to exist. The only option for winding up charitable proceedings is for the SCIO to dissolve itself entirely. A charitable company or trust on the other hand could take the decision to pursue other aims without having to wind up entirely and start again. Given the increased regulations, I’m aware of a number of small trusts who have removed themselves from the charities register and continue to operate. They’re no longer charities, however the savings that they have made in relation to reduced administration and compliance have offset the benefits they received as a charity. I should point out that this only works in very particular circumstances and shouldn’t be undertaken lightly.
There are many reasons for the sector to embrace SCIOs. They’ve proved largely successful for many charities and their trustees. However, traditional structures still might suit some charities better and the trustees should consider all options before embarking on a permanent move.Back to news list