What is the Appropriate Structure for your Charity?

Post Author:

Rona Burns

Date Posted:

August 25, 2020

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Categories:

Charity , Company News

In a recent blog we considered the slow death of the charitable trust and the rapid rise of the SCIO. This is a brief guide to the advantages and disadvantages of the principal structures available to those who wish to set up a charity in Scotland.

This guide is intended only as an outline of the main characteristics of each structure.  If you are thinking of setting up a charity, we would always recommend that you seek appropriate professional advice.

SCIO

Advantages

  • Relatively easy to set up
  • Operates in accordance with Scottish Charity Legislation alone
  • Routine administrative changes, such as appointment or resignation of trustees, can often be made by the trustees or their accounting or legal advisers
  • The charity is a legal entity separate from its trustees
  • Limited liability for trustees
  • Likely to be the least expensive to set up and administer

Disadvantages

  • May not be suitable if the charity needs to borrow money
  • May not be suitable for charities operating in multiple jurisdictions

Company limited by guarantee

Advantages

  • Relatively easy to set up
  • The charity is a legal entity separate from its trustees
  • Limited liability for trustees
  • May be more suitable for charities operating in multiple jurisdictions where the limited company structure is more widely recognised
  • May be more suitable if the charity needs to borrow money

Disadvantages

  • Subject to company law in addition to charity legislation. This increases the burden of compliance.
  • Routine administrative changes, such as appointment or resignation of trustees, can sometimes be made by the trustees but will often require the involvement of their accounting or legal advisers

Charitable trust

Advantages

  • May be appropriate in certain specific circumstances

Disadvantages

  • Subject to trust law in addition to charity legislation.
  • Administrative changes will invariably require the trustees to seek specialist legal advice
  • No strict distinction between the charity and the trustees (this is a very significant disadvantage if the charity intends to own property and/or employ staff)
  • Unlimited liability for the trustees (a very significant disadvantage if the trust falls into debt or has legal action taken against it)
  • More expensive to set up and administer

Photo by Kat Yukawa on Unsplash

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