Despite SCIO’S benefits, they do have downsides

Body could cause trouble for charities working across borders, says Lianne Lodge

The Scottish Charitable Incorporated Organisation (SCIO) has been widely embraced by the third sector since its creation.

Charities have traditionally operated as trusts, companies or unincorporated associations. A SCIO is a legal form of constitutional organisation unique to Scottish charities and designed specifically for their needs, bringing with it certain benefits.

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; in the first six months of 2017, 273 new SCIOS were created. For many charities, the decision to set up as SCIO is a good one, as they are 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 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.

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 may 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 all helps to explain why a significant number of existing charities are keen to explore converting to a SCIO. Of the 2868 SCIOS created since 2011, 700 were direct transfers from another constitutional arrangement. To put that in perspective, just 118 charities on the entire register have made a move to becoming a company and only two transitioned to a trust. This trend is seen at Gillespie Macandrew, where we have a steady and significant number of charity clients asking about converting to a SCIO.

However, despite the great benefits of SCIOS, they do have downsides and do not suit every charity.

For example their uniqueness could cause problems for charities working across borders. England and Wales have a similar body known as CIOS but internationally, it is not well-known.

When clients are considering registering as a SCIO, my first question is always why? Which of its advantages are they seeking to benefit from and will the flexibilities outweigh the work involved in reconstituting the charity?

Becoming a SCIO is a permanent decision, as once the organisation is entered onto the Scottish Charity Register, it cannot convert to another legal form or wind up and pass assets to another charity which is not 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 on the other hand could take the decision to pursue other aims without having to wind up entirely and start again.

There are many reasons to for the sector to embrace its fit-for-purpose SCIO. They have proved largely successful for many charities and their trustees. However, they shouldn’t be the automatic go-to. Traditional structures still might suit some charities better and the trustees should consider all options. Lianne Lodge is Head of Charities and the Third Sector, Gillespie Macandrew