Until 3 July, SCVO was incorporated as a company limited by guarantee. Discussing their decision to convert, Deputy Chief Executive, Lucy McTernan, explained "By becoming a SCIO and reporting solely to OSCR (Office of the Scottish Charity Regulator) rather than both OSCR and Companies House, we’re confident that SCVO is being regulated by an organisation that fully understands charities and the importance of protecting the public’s trust in the wider charity brand. Being a charity is all about changing people’s lives for the better and there’s a lot more to that than purely meeting financial obligations. This specialised structure for charities takes this into account and means that even the smallest charity can enjoy the benefits of incorporation, including limited liability, without having to comply with company law.”
So what is a SCIO?
As SCVO is the membership body for Scottish charities, it is not surprising that David Robb, the man at the top of OSCR, was pleased to see the organisation "showing leadership in this way". Whatever other reasons SCVO had for the conversion, there is no doubt that their decision will help to raise the profile of the SCIO. Despite the fact that this legal form was introduced several years ago, I still come across blank looks when I mention SCIOs to people outwith the sector.
The Scottish Government introduced the new SCIO legal form in April 2011 to allow charities to become incorporated but yet only be administered and regulated by OSCR (not by Companies House too, like charitable companies). As an incorporated organisation, a SCIO has separate legal personality, can undertake transactions directly and can enter into contracts, leases, employ staff and own property in its own name. SCIOs provide greater clarity (and indeed protection) for those running (and becoming members of) the charity in relation to responsibility for the debts and liabilities of the charity. This is an advantage of a SCIO over other legal forms, such as unincorporated associations or trusts, which do not have separate legal personality.
A private company limited by guarantee remains a popular choice for charities seeking to incorporate. However, unlike charitable companies limited by guarantee, a SCIO is not subject to dual registration by the Registrar of Companies and by OSCR, and is subject only to the requirements of charity law. This is seen as a great advantage for SCIOs and, from Lucy McTernan's remarks, it was clearly one of the motivating factors for SCVO choosing to convert. There are also perceived reputational benefits of being a SCIO, because in the public minds a company is more likely to be linked with profit making ventures than charitable ones.
One of the potential disadvantages of the SCIO is that its existence is dependent upon its charitable status. While other forms of charity can continue to operate even if it loses its charitable status, a SCIO only exists while it remains on the charity register. Having said that, for most organisations this is unlikely to be an issue.
Follow the leader?
In April this year OSCR announced the incorporation of the 1,000th SCIO and reported that SCIOs now make up a third of all new applications for charitable status. Of the SCIOs then registered, 766 were new organisations while the remaining 234 were existing charities which, like SCVO, have converted to become SCIOs.
It is clear that SCIOs are proving popular. Certainly, Morton Fraser's third sector team have seen a steady stream of SCIOs, both new and converted, since they were first introduced. I am not surprised that so many organisations want to start off as SCIOs as in many ways the process is simpler than incorporating a company and then applying for charitable status. Yet for an existing charity the conversion process can seem (but really shouldn't be) a long and daunting process.
Generally speaking, the larger the charity and the more complex its operations and activities, then the more complicated its conversion may be because of, for example, existing contractual arrangements or pension and heritable property issues. But that's where a charity's professional advisers should be able to provide value. I am currently advising two charities on the conversion process and there is no denying that there is a fair bit to think about but we've identified exactly what needs done when, so hopefully this should make the process easier for the trustees. Charities which are considering converting should seek professional advice. Sometimes, weighing up the pros and cons, the conclusion may be to stick with the existing structure.
With this in mind, for a large charity like SCVO to undertake the process shows precisely how valuable the SCIO form is by the sector. I certainly hope that their decision leads at least some of their members to think about their structure and whether it's right for their organisation. Only time will tell whether SCVO's vote of confidence will boost SCIO numbers.