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Alan Eccles: SCIOs are no panacea

Third Sector Online, 19 November 2009

Alan Eccles

The Scottish Government's proposed new legal form may prove problematic for charities, says our legal columnist

The Scottish Government's recently issued consultation on Scottish Charitable Incorporated Organisations has failed to quell fears that the vehicle will at best be a white elephant, and could even pose a risk to charities.

Several key questions remain over the purpose of SCIOs, such as what advantages they offer over the familiar company limited by guarantee.

The claim that charities will be freed from burdensome company law presupposes costs and administrative overheads far higher than is the case in practice.

Furthermore, SCIOs are likely to have the greatest appeal to unincorporated associations. But with no clear, straightforward mechanism for unincorporated associations to convert to SCIOs, such a move could be difficult, time consuming and certainly no simpler than converting to a company.

The Scottish Law Commission is considering the law of unincorporated associations, and I hope this issue of the legal mechanics will be covered.

SCIOs are being promoted to charities with incomes between £25,000 and £1m; the implication is that larger charities are still better off registering as companies.

However, as the consultation document points out, there is no clear legal path for conversion from SCIO to company, leaving charities that grow beyond the SCIO target income unable to simply switch to the more appropriate vehicle.

SCIOs also seek to relieve trustees of personal liability. It could be argued that reducing duties attached to being a charity trustee runs counter to good corporate governance. Greater clarity around risk and duties could be achieved by allowing unincorporated associations to convert in a straightforward manner – to an SCIO or company – benefiting both the public and trustees.

There may be a further sting in the tail around liability, since many of the duties imposed on trustees in non-SCIO legal forms would be extended to members under the new vehicle.

Membership is a loose concept, and could include many stakeholders, who will face more onerous burdens than non-trustees of a company, trust or even unincorporated association.

A new form of charitable vehicle is not unwelcome and could provide choice. However, SCIOs are not necessarily a panacea and their use will need careful consideration.

Alan Eccles is a member of the charities unit at national law firm Maclay Murray & Spens LLP. Alan.Eccles@mms.co.uk