The Slow Death of the Charitable Trust and the Rapid Rise of the SCIO
The charitable trust
In the not so distant past, if a person wished to establish a charitable organisation, they would most likely have set up a charitable trust. A trust is a long established form of organisation under which a group of individuals (the trustees) hold assets which are applied for the benefit of others (the beneficiaries) in accordance with a governing document (the trust deed). A trust need not be set up only for charitable purposes, but where a trust is set up for recognised charitable purposes it is known as a charitable trust.
Trusts are subject to trust law. In Scotland, this includes the Trusts (Scotland) Act 1921. The fact that this legislation is approaching its hundredth birthday is indicative that the law may not be entirely suitable for the 21st century. In addition to the legislation, there is also almost 100 years’ worth of case law to contend with. As a result, trust law is complex, often archaic, and an area best left to specialist lawyers. A charitable trust is subject not only to trust law but also to charity law.
Another organisational form which has been available for charitable purposes is the unincorporated association, which is a more loosely constituted structure of a group of people acting towards a common purpose. This structure is mostly used for small organisations such as local scout groups.
The charitable company
Moving forward a few years, the company limited by guarantee became available as a structure for a charitable organisation. A company limited by guarantee is governed by company law, which is on the whole more modern and less complex than trust law.
One advantage of a company limited by guarantee is that the company has a legal identity separate from its directors and members, and offers limited liability to the directors. By way of contrast, the rights and responsibilities of a trust are not separable from the rights and responsibilities of the trustees as individuals. Broadly speaking, a company limited by guarantee offers many advantages compared to a trust, including improved protection for the directors/trustees and, to a certain degree, ease of administration. A charitable company is subject to both company law and charity law.
The SCIO
The Charities and Trustee Investment (Scotland) Act 2005 introduced a new form of charitable organisation, the Scottish Charitable Incorporated Organisation or SCIO. The fundamental difference compared to trusts and companies is that a SCIO is subject only to charity law and is a structure available only for charitable purposes. A SCIO is a legal entity separate from its trustees and also provides limited liability for its trustees. In common with all other forms of charitable organisation in Scotland, SCIOs are regulated by OSCR, the Office of the Scottish Charity Regulator.
The first SCIO was established in 2011 and in the short time since then, the SCIO has become by far the most common structure for new charities. In 2019, just over 900 new charities were recognised by OSCR, split as follows:
SCIO 66%
Unincorporated Association 16%
Company 12%
Trust 4%
Other 2%
These figures alone demonstrate that the SCIO is now widely recognised as being an appropriate structure for new charities. Furthermore, a large number of older charities are converting to SCIOs where this structure is considered more appropriate to the charities’ requirements.
There may, of course, be occasions where a trust is still the most suitable form for a new charity and every case must be judged on its individual merits. However, we certainly appear to have reached the stage were the question is not “should I set up my charity as a SCIO?” but rather “is there any reason why I should not set up my charity as a SCIO?”.
Photo by Markus Winkler on Unsplash
