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Jury still out on new charity structures, claims law firm

31 January 2011

The jury is still out on the Government’s plans for SCIOs (Scottish Charitable Incorporated Organisations), according to law firm Tods Murray.

The firm claims that although SCIOs have been heralded for more than five years under the Charities and Trustee Investment (Scotland) Act 2005, a number of grey areas remain which undermine the potential workability and credibility of the proposed new legal structures.

Due to be introduced in April this year, SCIOs are expected to appeal to small unincorporated charities. They provide a charity with a legal status, requiring a constitution, annual meetings and registers of members and trustees while being regulated only by OSCR.

However, following two seminars for charities and their advisers hosted by Tods Murray’s Third Sector Forum, it is clear that the majority still need to be convinced that a SCIO would be attractive.

Limited liability

Alistair Burrow, a partner in Tods Murray’s charity law team, gave the seminars. He said: “A SCIO will have legal personality, just like a person or company, and will provide limited liability for members and those acting as its trustees provided they act within the law as set out in the Act. So far so good.

“However, a number of the proposed regulations associated with the creation and operation of a SCIO – particularly around OSCR’s requirements and when winding up a charity – are not yet clearly defined.

“Given the difficulties identified by OSCR in its recent surveys of opinion amongst charity trustees, it is difficult to see the proposed regulations on annual meetings and on keeping registers of members past members, trustees and past trustees having much appeal to those who criticise OSCR for the complexity of its rules and its forms."

Mr Burrow added that limited liability was one of the main drivers for charities seeking to incorporate as companies. "Currently, becoming a company limited by guarantee is the only option. This corporate structure is well known and established and I am told that preparing and examining or auditing accounts for a SCIO is unlikely to be significantly less expensive than doing so for a company of equivalent size."

He concluded: “In essence therefore, we think a proposed new charity might consider establishing itself as a SCIO, but are not sure from the reaction we have had to date, that there will be a great deal of appetite to convert an existing charity to a SCIO."

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