4. How does an existing charity become a SCIO?

4.1 Unincorporated associations and trusts

As well as new bodies applying to OSCR to be constituted as SCIOs, it is likely that a number of existing charities may wish to change their legal form from an unincorporated association, trust or other legal form to a SCIO. Before they do so, they should study the table at section 2.1 and seek advice as necessary to ensure that becoming a SCIO is the most appropriate step for their charity. Such applications will be accepted from 1 April 2011.  

Please note that, throughout this section, we have referred to unincorporated associations or trusts which wish to change legal form to a SCIO as they are the two forms most likely to wish to make this change. However, this section applies equally to any other charity which is not a company or industrial and provident society and which wishes to change legal form to a SCIO.

The 2005 Act does not include a specific mechanism to allow an existing charitable unincorporated association or trust to change its legal form to a SCIO (that is, to create a new SCIO with the same name and charity number as the existing charitable unincorporated association or trust, transfer the latter’s assets and undertaking to the new SCIO and wind up the existing charitable unincorporated association or trust).

Instead, the existing charitable unincorporated association or trust must use a combination of other mechanisms provided by the 2005 Act in order to change legal form to a SCIO. In outline, members or charity trustees of the existing charitable unincorporated association or trust will:

• Apply to OSCR for the incorporation of a SCIO
• Apply to OSCR for the existing charitable unincorporated association or trust to be removed from the Scottish Charity Register at the same time as the new SCIO is incorporated
• Following the removal of the existing charitable unincorporated association or trust from the Register, transfer all of its assets, liabilities and undertaking to the SCIO and thereafter wind up the existing unincorporated association or trust.

The procedure for a change of legal form for an unincorporated association or trust to SCIO is set out in more detail in Appendix 1.

There are a number of issues which impact on the process which an existing charitable unincorporated association or trust must follow to change its legal form:

• Under section 10 of the 2005 Act, OSCR cannot enter a body (including a SCIO) in the Scottish Charity Register if its name is the same as, or too like that of a charity. This means that the existing charitable unincorporated association or trust and the new SCIO cannot be entered in the Register at the same time with the same name.
• It is also not possible for two charities with the same charity number to be entered in the Register at the same time
• For the existing charitable unincorporated association or trust to be able to transfer its assets and liabilities to the new SCIO, the latter needs to be incorporated (that is, entered in the Scottish Charity Register).
• If the existing charitable unincorporated association or trust has entered into particular legal contracts, such as leases or service level agreements, it may take some time to transfer these to the new SCIO
• Similarly, an existing charitable unincorporated association or trust which obtains benefits on the basis of its charitable status, such as grant funding or rates relief, must consider how these benefits may be affected during the process of changing its legal form.

If the existing charity does not wish the new SCIO to retain the same name and charity number, the change to legal form process is simpler. In such circumstances, provided the name of the proposed SCIO is not too like that of the existing charity, both the existing unincorporated association or trust and the new SCIO may be entered in the Register at the same time. This would enable the unincorporated association or trust to transfer its assets and liabilities to the new SCIO, and to resolve any legal or contractual issues, before it applies to OSCR for consent to dissolve and be removed from the Register.  

4.2 Companies and industrial and provident societies: the conversion process 

The 2005 Act sets out a specific process for existing charitable companies and charitable industrial and provident societies (‘IPSs’) to be converted into SCIOs (see Appendix 2 for full details of this process). This part of the legislation does not take effect until 1 January 2012, and therefore applications cannot be submitted to OSCR until that date.

The conversion of a company or IPS to a SCIO may only take place if: 

• In the case of either the company or the IPS having a share capital, that share capital is fully paid up (in the majority of cases, charitable companies will not have a share capital)
• In the case of companies, the company has more than one member.

As with charitable unincorporated associations or trusts wishing to change legal form to a SCIO, the company or IPS considering conversion to a SCIO should first study the table in section 2.1 and seek advice as necessary to ensure that becoming a SCIO is the most appropriate step for the charity. 

The application to convert a company or IPS into a SCIO follows in the main the same process as the application for the incorporation of a new SCIO (see section 3). The company or IPS wishing to convert into a SCIO must complete an Application for Conversion form and, in addition to the documents set out in section 3, must submit it to OSCR with the following documents: 

• A copy of the resolution of the company or IPS agreeing to its conversion into a SCIO, and
• A copy of the resolution of the company or IPS adopting the proposed constitution of the SCIO

These resolutions must be either a special resolution of the company or IPS, or a unanimous written resolution signed by or on behalf of all the members of the company or IPS entitled to vote on a special resolution. The resolutions should state the name of the company or IPS which wishes to convert, and both its charity number and company number or Financial Services Authority (‘FSA’) reference number (as appropriate). The FSA may also require an IPS to complete a Statutory Declaration which confirms the resolutions have been passed in line with legal requirements.

Before making a decision on the application for conversion, OSCR is required by the 2005 Act to consult Companies House or the FSA, for applications from charitable companies and IPSs respectively, and any other person it thinks would be appropriate.

In addition to the reasons for refusal of an application for the creation of a SCIO set out at section 3.2, OSCR may also refuse the application for conversion on the basis of any information provided by those it has consulted.

If OSCR is satisfied that the proposed SCIO meets the charity test (see section 3.2) and that (following consultation), there are no other grounds to refuse the application, OSCR will grant the application to convert the company or IPS into a SCIO.

If the application for conversion is refused, the charitable company or IPS has the right to seek a review of OSCR’s decision following the same process set out in section 3.4 of this guidance.