When setting up a SCIO, sometimes two tiers is better

The Scottish Charitable Incorporated Organisation (SCIO) is the most popular legal structure for new charities setting up in Scotland. But despite there being over 2,500 SCIOs, there’s still a lot of people who don’t know what they are. So, why is this particular legal structure so popular? A big factor is that a SCIO is a corporate body, which means it can hold property, employ people, raise large-scale finance and enter into contracts in its own name. These activities carry a certain amount of risk. With a SCIO, the liability of the organisation to third parties is limited to the total amount of the members’ guarantees. This gives protection to those running the organisation and its members in most cases. By contrast, an unincorporated organisation is a collection of individuals with no separate legal identity, and this increases the risk of personal liability if things go wrong. If you’re setting up a charity, before you decide on the right structure, you should think through the types of activity you may be involved in and the level of risk attached. This will help you decide whether incorporation is right for you, both now and in the future, and ensure that your legal structure won’t restrict you from doing your work effectively. If you’re interested in setting up a new SCIO, or even incorporating your existing charity, we’ve got a whole load of guidance and model documents which will help you.

If you’re interested in setting up a new SCIO, or even incorporating your existing charity, we can help

If you do decide on becoming a SCIO, you also have to conisder how many tiers you want. You’re going to have to choose between a single tier SCIO or a two-tier SCIO. ‘But what’s the difference?’ I hear you say. Well, in a single-tier SCIO, the same individuals are both members and charity trustees, and there’s no wider membership that can vote at an AGM. Whilst charity law and SCIO regulations allow for a single-tier SCIO, it’s important to note that this isn’t always the best choice for a lot of community organisations. Similar to the structure of a traditional trust, a single-tier SCIO leaves complete control of the organisation in the hands of a small group of individuals, including control over future changes to the constitution, and over who serves on the SCIO board. So whilst a single-tier SCIO has the benefit of simplicity and reduced administration, it lacks wider accountability. If you’re just setting up, you might think you won't be able to recruit a large number of people to become members. That’s a common concern in new organisations, and quite understandable. But if you think there should be an election process at an AGM, even if attendance may be low, then a membership organisation is the right option for you. Membership organisations are probably the most common in the third sector. With this two-tier structure, the board is elected by and accountable to a wider body of ordinary members at an AGM. Members have ultimate control, rather than the board, which manages and supervises the activities of the organisation, and monitors its financial position. This accountability is favoured by many funders, as it is seen as more democratic and representative of community interests. If you have any questions about incorporation, SCIOs, or any aspect of governance and constitutions, please contact the SCVO Information Service. If you’re a member of SCVO, you can also access up to two free hours of legal advice. And finally, if you just want advice on cake, we would say the more tiers the better!