KNOWLEDGE

What are the differences between Scottish Charitable Incorporated Organisations (SCIOs), Community Interest Companies (CICs) and companies?

MortonFraser_Fiona Byron
Author
Fiona Byron
Associate
Morton Fraser_Adrian Bell
Author
Adrian Bell
Partner
PUBLISHED:
01 January 2021
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Article

Your charity could be one of many legal structures and it can often be difficult to choose which would the most suitable.

Here, we take a look at some of the different options available:

1. SCIOs

SCIOs are different from other legal structures as they are corporate bodies but are not companies and therefore are not subject to company law rules.  They do however, have separate legal personality from that of their charity trustees.  Separate legal personality means that SCIOs have the ability to enter into contracts, employ staff, own property, sue and be sued.  It also provides a high degree of protection against liability as actions are carried out by the SCIO and not its charity trustees.  They are regulated by OSCR alone, as opposed to both OSCR and the Registrar of Companies.

From a governance perspective, every SCIO must have a constitution which contains the following key information:

1.1    Its name and charitable purposes

1.2    Membership rules stipulating who is eligible to be a member and how a person can become a member.

1.3    Charity trustee rules stipulating who is eligible to be a charity trustee and how many have been appointed.  By law, there must be a minimum of 3 charity trustees.

1.4    Details of the procedure that members and charity trustees must follow to withdraw from membership or as a charity trustee.

1.5    Details of any restrictions on powers of the SCIO as under the 2005 Act, SCIOs have wide powers to do anything to further its charitable purposes unless otherwise restricted by way of the constitution

1.6    Details of procedures for meetings, for example how they will be convened and recorded, what constitutes a quorum, what voting rights do members and charity trustees have and the process by which resolutions will be passed.

1.7    Details of any restrictions on the remuneration of charity trustees

1.8    Details of procedures for dealing any conflicts of interest

1.9    Details of how the SCIO will use any surplus assets it has at the time of its dissolution.  In the event that there are no surplus assets, members are not liable to contribute to the assets if wound up.

In addition to complying with the above, a SCIO must have its principal office in Scotland, have at least two members and use and apply its property to further its charitable purposes in accordance with its constitution.

2. Community Interest Companies (CICs)

CICs are limited companies, with special additional features, which operate to provide a benefit to the community.  They are, in effect, a hybrid between a charity and a company.  Unlike other legal structures, CICs are permitted to make a profit so long as the profits are invested in the community and not used solely for the benefit of private investors.  This is known as the 'asset lock', meaning that that its assets and profits must be permanently retained within the 'CIC wrapper' and used solely for community benefit

CICs have separate legal personality meaning that their directors are afforded protection from liability.  CICs are regulated by the Community Interest Companies Regulator.  

The articles of association, its governing document, must contain a statement that the company is a Community Interest Company, which must also form part of its name.  The statement, signed by all of the company's directors, must confirm that the company is formed to serve the community and not private investors, and must set out the activities the CIC intends to engage in to achieve a profit for the community. 

With its annual accounts, CICs are required to submit an annual community interest report which is filed at Companies House and copied to the CIC Regulator.  The report must include details of the remuneration of the directors and dividends paid to shareholders.  

3. Companies

There are many forms of companies, such as public limited companies, private limited companies by shares, companies limited by guarantee and limited liability partnerships.  In the context of charitable companies, they are regulated by both OSCR and Companies House.  They have separate legal personality meaning that they can undertake transactions in their own right.  

They have unlimited powers in furtherance of its purposes, subject to any restrictions contained in its articles of association or company law.  Members are not required to abide by the duties of charity trustees.  Instead, they are required to follow the wide-ranging duties and requirements set out by company law including the duty to keep a register of members and directors.

Members are required to prepare accrued accounts regardless of the level of income.

Disclaimer

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers.  Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.