Part 2: Becoming a Company or SCIO

Reorganisation schemes

Charities that do not have the power to make changes can apply to OSCR for the authority to do so. Making such an application is referred to as applying for a ‘reorganisation scheme’. The most relevant types of scheme for village hall charities are:

1. A scheme to transfer the charity’s property (after satisfaction of liabilities) to another charity and then wind up. For example where the charity trustees want to transfer the charity’s heritable property and other assets to another local charity or a new incorporated charity established for the purpose of receiving the assets and running the hall in the future.
2. A scheme to vary the charity’s constitution: for example to amend current provisions preventing them from making changes, or to introduce new provisions to enable them to make changes. Where the constitution is a Deed of Trust, this will involve drafting a Supplementary Deed or Deed of Variation.

For village hall charities which want to incorporate, the quickest and most straightforward way to achieve this will be to apply for a ‘transfer of the charity’s property to another charity’. Therefore, this guidance primarily deals with this particular type of reorganisation scheme. OSCR can approve such a transfer even where the charity’s governing document does not permit this - providing one of the reorganisation ‘conditions’ and ‘outcomes’ are met (see Types of reorganisation schemes in Part 3).

In this guidance we will assume that the charity trustees will want to set up a SCIO or a company to be the recipient of the existing charity’s property and assets. Therefore, before OSCR could approve such a reorganisation scheme, the charity trustees would need to establish the new charity which they want to transfer the assets to. 

Steps to incorporation

Step 1: Before charity trustees apply to OSCR

1. Find out who holds title to the charity’s property
2. Find out if the property is held in trust
3. Find out if the village hall was established by a Deed of Trust.
   • Do any of the charity trustees or professional advisors (accountant or lawyer) have a copy of the Trust Deed?
   • If not, does OSCR have a copy?
   • If the charity trustees know who set up the Trust, they may be able to obtain a copy of the Deed from Registers of Scotland (Books of Council and Session), although Deeds would be filed under the name of the Trustor and not, for example the name of the village hall.
4. Ensure all of the charity trustees agree to the application and proposed changes, both those who hold title and the management committee. 

The Trust Deeds for many village hall charities will identify a number of persons in the preamble who are referred to as ‘the Trustees’, those who originally held title to the property. 

For example:

‘DEED OF TRUST MADE THE TWENTY EIGHTH OF FEBRUARY 1961 BY ROBERT GRAHAM JONES PRESENT PROPRIETOR OF THE LANDS AND ESTATE OF NEVERLAND, REVEREND GEORGE DAVIDSON PRESENT MINISTER OF THE PARISH CHURCH OF NEVERLAND, JIM TIMPSON SCHOOLMASTER SCHOOLHOUSE NEVERLAND, MISS LAURA DUFFY AND MISS FRANCINE DUFFY BOTH OF VALE COTTAGE ALL IN NEVERLAND IN THE PARISH OF NEVERDALE AND COUNTY OF NEVERBURGH (THE PERSONS FOR TIME TO TIME ACTING HEREUNDER CALLED ‘THE TRUSTEES)’.

These named individuals and their successors as Trustees hold title to the property.

Village Hall charities may have a clause such as the following in their Trust Deed:

This clause enables the Management Committee to fill any vacancies in the office of Trustee: by that we mean one of the property trustees. For example, if two of the trustees who originally held title have died and replacements have not been appointed, the Management Committee may be able to appoint replacements.

Other considerations

Charity trustees should fully consider the implications of making changes. Charity trustees have a duty to act in the best interests of the charity and they should seek appropriate advice where necessary. Charity trustees should make themselves aware of all the potential consequences of the changes, which might include the following:

• Cost: conveyancing fees, solicitors fees, etc.
• Banking: banks are likely to require charity trustees to open a new account for the new incorporated charity.
• Changes to insurance.
•  Dissolution of the old charity may trigger crystallisation of any pension deficit.
• HMRC registration.
• Conveyancing: ensuring title is legally transferred.
• Licences: transfers of licenses to the new incorporated charity.
• Other Regulators: if the charity is currently registered with any other regulator we recommend the charity trustees contact them to ensure that they comply with any requirements they have in relation to the proposed change.
• Membership: have the membership been consulted about the changes?
• Funders: will funding automatically transfer to new incorporated legal entity?
• Direct Debits: changes required if changing bank account.

We would strongly recommend that charity trustees seek additional advice at the outset before embarking on this process if there is any uncertainty over any of the potential issues highlighted above. 

Step 2: Setting up a SCIO or company

Charity trustees should complete an online application form to become a charity if they want to become a company or a SCIO.

Legislation requires that a SCIO’s governing document must contain certain provisions. Therefore, we recommend village halls consider using a model SCIO governing document, such as SCVO’s model SCIO constitution. Company law also requires that certain provisions are contained in the governing document so if the proposal is to become a company, we recommend village halls consider using a model such as SCVO’s model Articles of Association.

There is further guidance on the SCIO legal form on OSCR’s website and from SCVO.

Once OSCR has entered the company or SCIO on the Scottish Charity Register, the charity trustees can move to Step 3.

Step 3: Apply for Consent to Reorganise

Download the application form for consent to reorganise from our website.

In order for OSCR to be able to approve an application for a reorganisation scheme, the applicant must satisfy OSCR that at least one of the reorganisation ‘conditions’ and ‘outcomes’ is met. Further details on what each of these conditions and outcomes means are in our charity reorganisation guidance.

How long does a reorganisation application take?

For charities with an annual income of less than £1,000 and which have no heritable property or shares in a private limited company, a simplified reorganisation process is available (at OSCR’s discretion). If OSCR decides to apply the simplified process, OSCR must then make a decision within 13 weeks of receiving the application.

If the charity does hold heritable property (e.g. a hall), the reorganisation process will take longer. OSCR is required to publish a summary of the proposed reorganisation on its website and members of the public are entitled to make representations, either in favour of or against the proposals. In these cases, OSCR is required to
make a decision within 26 weeks of the closing date for receipt of representations from the public. A decision is likely to take around 6 months from the date of the original application.

At the end of this guidance, we have included some case studies of village hall charities which have applied to OSCR for a reorganisation scheme for a transfer of the property of the charity to another charity. 

Step 4: Transfer the assets/property to the recipient charity

Firstly, charity trustees should be aware that it’s possible that OSCR will refuse consent to a reorganisation scheme if we are not content that a reorganisation condition and outcome are satisfied. However, if we do approve a reorganisation scheme for a transfer of the charity’s property to another charity, the next steps are set out below.

If the approved scheme is for a transfer of the charity’s property, the charity trustees can go ahead and transfer all of the charity’s assets to the other charity. The result of this is that the original charity is wound up. 

Transferring title

OSCR’s approval of the application for consent to reorganise does not make the transfer happen. Where the charity’s assets include heritable property (the hall itself), the charity trustees are still required to make sure this is legally transferred to the recipient charity. In order for a transfer to be legally effective the title has to be formally re-registered in the new charity name (this is known as a conveyance and the charity trustees should instruct a property solicitor to carry this out). OSCR will require evidence that the transfer has taken place.

The charity must be able to identify who holds title to the property or else they will be unable to give effect to the reorganisation. 

Step 5: Notify OSCR

OSCR will normally request evidence that all of the assets have been transferred. Such evidence might typically include final accounts, evidence of receipt from the new charity, disposition (of heritable property).

Once OSCR is satisfied that the evidence is in order and that the ‘old’ charity has no remaining assets, we will remove it from the Scottish Charity Register.