We release today our latest (here and here for previous blogs on this) research on legal vehicle choice for new charities and third sector bodies in Scotland.

What key features do we detect?

  • ‘Too many’ unincorporated associations. As a rule of thumb unincorporated associations should be avoided as a legal vehicle for charities. They create risk (including personal liabilities), are rather nebulous as they do not exist as a legal entity and are unhelpful when holding property.‎ Starting off as an unincorporated association might appear an easy way to start a charity and then change legal form at a later. This is unlikely to be a preferred course of action as (1) there are few situations where an unincorporated association suits any charity, and (2) a change to another vehicle at a later stage may be more complex and involved than anticipated.
  • SCIOs continue to thrive. SCIOs continue to be the most popular legal vehicle for new charities. It also striking that they are being used by a wide range of charity types and purposes. In discussions in the sector that go beyond the stats, there is growing focus on the flexibility of the SCIO rather than the benefits of limited liability. On SCIOs it will be important to make sure the constitution is crafted correctly and, as we have discussed before, there is not an artificial and misleading focus on the idea of ‘single tier’ and ‘two tier’ SCIOs.
  • Companies remain a good option. While the preferred choice for new charities is likely to be a SCIO, charitable companies are still being used and quite rightly. In some cases careful consideration of the situation will tend towards using a company. For us, the main situations ‎where that is the case are (1) the need for familiarity (although this is becoming much less so (nearly imperceptible now) as the SCIO ‘matures’), (2) keeping open the option of borrowing supported by a ‘floating charge’ (a type of security that companies can give to lenders), and (3) connected to familiarity, is where international operations will be a focus of the charity (albeit we see SCIOs we have helped set up working globally).
  • Is it really the end of the trust? October saw a single solitary trust being used for a new charity. The question is when will it be zero? We suspect that will happen in the not too distant future. Goodbye old friend
  • CIC-ing for goal. Community Interest Companies are a feature of the third sector landscape. In the right circumstances CICs provide a real flavour of the hybrid charity, social, commercial/social enterprise entity many characterise them as. But CICs will not suit every situation and as with an unincorporated association (but for different reasons) a change of legal form at a later date can be involved. A careful consideration of the mix of funding, borrowing, investment, purposes, mission, income and capital return, tax and familiarity should be carried out before opting for a CIC. It may be that there are other, more straightforward and flexible, ways to achieve the ambitions and objectives using other vehicles.

We will continue to monitor the statistics on new charities and third sector bodies to seek to detect any themes and patterns about vehicles are being used and more importantly why.