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The Scottish Charitable Incorporated Organisation, or “SCIO”, is the newest form of charity structure in Scotland.  Five years on from its introduction, over 1,000 SCIOs have been established.  An increasing number of clients are choosing a SCIO rather than a charitable trust or company limited by guarantee.  Read on to find out more about the key features of SCIOs.


What Is a SCIO? 

SCIOs were designed to provide some protection from personal liability for charity Trustees without requiring the same regulatory requirements as a company. 

A SCIO is essentially a hybrid between a charitable company and a charitable trust. Like a company, it is a corporate body which means that it has separate legal personality.  Although a corporate body it is not registered with Companies House. Its sole regulator is OSCR – the Office of the Scottish Charity Regulator.  Unlike other charities, a SCIO’s existence is dependent upon its charitable status.  It only comes into existence when registered on the Scottish Charity Register and will cease to exist if charitable status is revoked. 

When Should A SCIO Be Used?

SCIOs are appropriate where smaller scale business activities are being carried out and a limitation of personal liability is desirable. The costs of a full blown company structure would be disproportionate.
They would not generally be used for simple donation making charities, or where the settlor wishes to retain control over the trust funds.


Key Benefits  

SCIOs have separate legal personality.  They can enter into contracts, incur debts, own property, employ people and sue and be sued in their own name.  
Separate legal personality also means that the Trustees are protected from incurring personal liability unless they act negligently, illegally or outside their powers.  Members are not liable to contribute to the assets if the charity is wound up.
Another key benefit is that running costs are generally lower than for charitable companies.  As SCIOs have a single regulator, there is only one regulatory regime to be complied with and administration costs tend to be lower.

Trustees v Members

All SCIOs have both Trustees and Members.  Trustees are subject to the same duties as all charitable Trustees.  Members are also subject to some of these duties. 
In a single tier SCIO, the charity is governed by Trustees who are also the SCIO’s Members.  While this model has the advantage of simplicity, it is not suitable where accountability to a wider body of members is seen as important because control is left in the hands of a very small number of individuals.  For most bodies large enough to be considering the SCIO route rather than a trust, this model is therefore not going to be appropriate. 
In a two tier SCIO, the charity is still governed by Trustees but also has a separate membership body which has certain powers and duties.  Resolutions by Members are required before certain actions can be carried out.  In practice, there is a check on the Trustees’ powers and this model therefore offers greater transparency.  It is also the more suitable form where the support of a larger body of members will be required. 
In either case, all SCIOS must have at least three Trustees and two Members.  


How To Establish A SCIO

A SCIO is established by a Constitution.  This governing document sets out the charitable purposes as well as all the rules for how the charity will operate.  Charity law specifies certain requirements which must be included. 

The Constitution must be approved by OSCR.  As always, in order to qualify as a charity, a SCIO must meet the “charity test”.  OSCR determines whether or not the test has been met upon review of the Constitution and a detailed supporting application form.  We can guide your clients through this process to help ensure that the test is met. 
Once the SCIO is registered with OSCR it will be necessary to apply to HMRC for recognition of charitable status.  Depending on what activities the SCIO will undertake, further registrations may be required.  
It is also possible for existing charities to convert to SCIOs.  A separate application process applies.  Upon conversion the SCIO cease to be regulated by Companies House.


Ongoing Administration 

SCIOs must meet certain legal requirements once established.  Trustees of a SCIO must also comply with the duties applicable under both general trust law and general charity law.  This includes rules regarding Trustee remuneration.

An additional duty which applies only to SCIOS is the need to keep Registers of Members and Trustees.  Members’ and Trustees’ meetings must also be held within set timescales.  
There is a requirement to report regularly to OSCR via an Annual Return and to prepare annual accounts. Accounts must comply with the Charities Accounts (Scotland) Regulations 2006 and an audit or independent examination will be required depending on the level of assets and income.
Importantly, the SCIO’s name and reference to SCIO status must also appear on all specified documents.  This includes documents hosted on the SCIO’s website.  It is a criminal offence to issue or sign documents which do not include these details and the relevant Trustee can be fined up to £1,000.  Unlike other charities there is no requirement to include the charity number but OSCR strongly recommends this. 


Bringing A SCIO To An End

The usual provisions regarding removal from the Charities Register do not apply to SCIOs. Instead, special regulations govern the end of life of a SCIO. 

A SCIO can be brought to an end in various ways:-
•Amalgamation with another SCIO
•Transfer of undertakings to another SCIO
•Solvent dissolution
•Insolvent dissolution
An application to OSCR is required in each case. 
As previously noted, the SCIO’s existence is dependent on its entry on the Charity Register.  If it stops meeting the charity test it will be removed from the Register and will cease to exist.  OSCR has the power to direct a SCIO to take such steps as are necessary to bring it back in line with the charity test.  If it continues to fail to meet the test, OSCR can ultimately direct the SCIO to apply for dissolution.  Should a SCIO fail to comply with this direction, OSCR will apply to the Court of Session.  
It is therefore very important that Trustees and Members of SCIOs take steps to ensure that they comply with all legal requirements to avoid the SCIO being prematurely brought to an end.    
Should you wish to discuss any of the above matters further, please do not hesitate to contact a member of the Private Client Team.

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