SCOTTISH CHARITABLE INCORPORATED ORGANISATIONS - FAQs
- What is a Scottish Charitable Incorporated Organisation?
A Scottish Charitable Incorporated Organisation (SCIO) is a new legal form, which will allow Scottish charities to incorporate without having to become companies.
- Why would a charity want to incorporate?
When an organisation incorporates, it acquires legal personality and provides its trustees and members with a certain degree of insulation from personal liability. This allows the charity itself to own property and enter into contracts, including employment contracts, rather than requiring the trustees to do so in a personal capacity.
- What is the difference between a SCIO and a company limited by guarantee?
A SCIO is a new legal form of incorporation designed solely for charities and so does not share a regime which is primarily intended for profit-distributing companies with shareholders. The SCIO provisions sit wholly within devolved legislation and SCIOs will be regulated only by OSCR. In contrast, a charitable company is required to comply with both devolved Scottish charity legislation and company law which is reserved to the UK Government. Moreover, a charitable company must report to, and be regulated by, both Companies House and OSCR.
- Can a charity become a SCIO now?
No. The SCIO provisions under chapter 7 of the Charities and Trustee Investment (Scotland) Act 2005 are not yet in force. The relevant sections will be commenced once Regulations setting out the detailed operational framework have been produced.
- When will the SCIO become available?
Under current plans, which involve extensive consultation, we do not expect the SCIO provisions to come into force before April 2010.
- The Scottish Charities Act was passed in 2005. Why is it taking so long for the SCIO to become available?
As with other Acts of the Scottish Parliament, the implementation of the 2005 Act has been a phased process. Most of the Act was commenced in April 2006, in particular, the creation of the Scottish Charity Register and most of supervisory powers of the Office of the Scottish Charity Regulator (OSCR). The development of a new legal form is a complex and technical process and we want to ensure that the final product is fit for purpose.
One of the reasons for deferring the implementation of the SCIO provisions was to ensure that we could take account of the development of the Charitable Incorporated Organisation (CIO) by the UK Government, when designing the SCIO regime.
- What is a Charitable Incorporated Organisation (CIO)?
The CIO is the new incorporation vehicle for charities in England and Wales. The Office of the Third Sector, which is part of the UK Government, and the Charity Commission for England and Wales, recently consulted on a draft regulatory framework for the CIO. You can access the consultation on the Office of the Third Sector's website.
- How does the CIO differ from the SCIO?
In many respects, the basic legislative frameworks for the CIO (as set out in the Charities Act 1993 as amended by the Charities Act 2006) and the SCIO (as set out in the Charities and Trustee Investment (Scotland) Act 2005) are broadly similar and share similar policy drivers; namely to provide a straightforward incorporation vehicle for charities. However, there are a number of differences in primary legislation, so there will be divergences between the CIO and SCIO; but the extent of the variance will depend on the final design of each.
- Will a CIO with cross-border activity be required to register as a SCIO with OSCR?
Like all charities with premises or activities in Scotland, a CIO with cross-border activity will have to register with OSCR but it will not be required to register as a SCIO. It will be entered on the Scottish Charity Register as a CIO.
- Why not save time and just copy the design of the CIO?
While we would not pursue difference for difference's sake, we need to ensure that the SCIO is designed to meet the needs of the Scottish charity sector. There are additional complexities associated with the relationship between devolved legislation in Scotland (i.e. charity law) and reserved legislation (i.e. company and corporate insolvency law) that we will need to consider, which would not be relevant for the development of the CIO. So, while we fully intend to take the CIO regime into account when developing policy on the SCIO, the different sectoral and legal context in Scotland will also be influential in shaping its development.
· Why has the Scottish Government set up a Working Group to advise on the development of the SCIO?
We are keen to ensure that this process is driven and supported by the charity sector in Scotland and those who advise Scottish charities. The SCIOs Working Group is a short-life panel of stakeholders from the charity sector and professional advisors with expertise in charity law, finance and governance. They are tasked with advising Ministers on how best to deliver an operational framework for SCIOs that is cost-effective, as straightforward as possible and tailored to the needs of charities in Scotland.
· What will happen after the Working Group makes its recommendations to Ministers?
We expect that a full public consultation on the policy proposals will follow later in 2009, after which Regulations will be developed in light of the responses received.
- Is there any connection between the development of the SCIO and the Scottish Law Commission's Discussion Paper on Unincorporated Associations
The Scottish Law Commission (SLC) published a discussion paper, on 3 December 2008, considering, amongst other things, how to address the difficulties of lack of limited liability and legal personality faced by unincorporated associations in Scotland. As the paper explains, the law of unincorporated associations is a reserved matter under section C1 of Schedule 5 to the Scotland Act 1998 and, thus, beyond the legislative competence of the Scottish Parliament. As such, it is not an area of law in which we have a locus. In contrast, the legislative context for SCIOs is wholly devolved, with the basic framework already set out within primary legislation. In the course of its deliberations, the SCIOs Working Group is considering the SLC project and its relevance for the development of the SCIO.
- What will a charity have to do to become a SCIO?
Chapter 7 of the 2005 Act contains the basic requirements for application to OSCR for a SCIO to be constituted and for conversion to SCIO form from that of company or friendly society form. These provisions set out the general framework but not the detailed requirements which will form part of the SCIOs Working Group's deliberations and ultimately be subject to public consultation later in the year.
It is difficult to project possible costs associated with forming or converting to become a SCIO without knowing the detailed procedural requirements but we are mindful of the need to keep costs to a minimum for charities. There may be administrative costs for the prospective SCIO in preparing an application or if it chose to seek professional advice. There will not, however, be any charges levied by OSCR for processing an application or filing returns or accounts.
- Will all charities have to become SCIOs?
No. There is no requirement for any charity to become a SCIO; it is entirely voluntary. We do not expect that the SCIO will provide an ideal form for all charitable bodies. Smaller charities with no employees, property or contracting opportunities may not consider the benefits of legal personality or limited liability to justify the change in constitutional form.
- Will charities have to make a lot of changes?
Without the detailed operational requirements, it is not possible to gauge the extent of changes required, which will also depend on the current form of the charity. There will undoubtedly be changes to constitutions and, potentially to governance procedures but the exact nature of the changes required remains to be determined.
- Will being a SCIO make any difference to the preparation and scrutiny of its accounts?
The Working Group will be considering accounting and scrutiny requirements for SCIOs but we would expect that questions on the form of accounts and related thresholds will be included in the consultation, which will follow later this year.
Once again, the degree of complexity associated with setting up and running a SCIO remains to be determined but we are keen to design a regime that is accessible to its users while providing the necessary accountability to the regulator and transparency for third parties.
SCIOs will be regulated by OSCR.
- Who can I contact for more information or with any other questions?
Further queries or requests for information can be sent to:
Charity Law Team
Civil Law Division
St Andrew's House
Edinburgh, EH1 3DG
We will endeavour to answer your questions as fully as possible but, as much detail of the regime is currently under development, there may be some questions which it is not possible to answer at the current time. However, we will try to ensure that any such questions are addressed in the consultation process which will follow later in the year.