Wednesday, November 25, 2009

Choice of Entity in Scotland – The SCIO

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

Third Sector reports that the Scottish government launched a consultation to determine the details of implementation and regulation regarding SCIOs.  A committee of experts is trying to determine the best possible middle ground for the creation and regulation of SCIOs.  They feel that the existing Scottish company law is too burdensome, but that unincorporated organizations must submit to some sort of heightened regulation upon becoming an SCIO in order to bolster investor confidence.

The Scottish government seeks to promote uniformity between its SCIO laws and law governing English CIOs.  However, the Scottish consultation document recognizes that “the ultimate design of each regime must be tailored to the specific context within which it will operate.”  The law governing English CIOs is undergoing revision because it is based too heavily on English company law. 

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

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