Choice of Entity in Scotland – The SCIO

The Scottish Charitable Incorporated Organization [SCIO] is anew legal form aimed at charities with incomes between £25,000 and £1m thatwant to acquire a legal personality and relieve their trustees of personalliability, but do not want to become charitable companies subject to the fullrange of company law.  The SCIO is a productof the Charities and Trustee Investment (Scotland) Act 2005.

ThirdSector reports that the Scottish government launched a consultation todetermine the details of implementation and regulation regarding SCIOs.  A committee of experts is trying to determinethe best possible middle ground for the creation and regulation of SCIOs.  They feel that the existing Scottish companylaw is too burdensome, but that unincorporated organizations must submit tosome sort of heightened regulation upon becoming an SCIO in order to bolsterinvestor confidence.

The Scottish government seeks to promote uniformity betweenits SCIO laws and law governing English CIOs. However, the Scottishconsultation document recognizes that “the ultimate design of each regimemust be tailored to the specific context within which it will operate.”  The law governing English CIOs is undergoingrevision because it is based too heavily on English company law. 

While the Scottish government is hopeful that the SCIO willprovide a viable option for unincorporated organizations that do not want tobecome companies, experts have raised a number of concerns.  There is concern that becoming an SCIO may notbe any simpler than becoming a company because at present there is no clearmechanism for converting from an unincorporated organization into an SCIO.  Further, the SCIO form is designed forcharities with incomes between £25,000 and £1m, but there is no clear path toconvert from an SCIO to a company once a charity outgrows the SCIO form.  Finally, there is a concern that relievingtrustees from liability, one of the SCIO’s key features, may result in weak and unaccountable governance.  The consultationis scheduled to run through February 26, but the new form is not likely to beavailable until late 2010 or early 2011.

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