Charities and incorporation: Changes coming soon

13 Sep 2016

One of our commitments as a regulator is to work to improve our services, making sure that they are as efficient and effective as possible. When thinking about the best way of doing things, we are concerned with the whole picture. How is the process working for charities? How does it help us do what we need to do? How is it working for other stakeholders such as our sister regulators?

For some time, we have been concerned about one of the processes that charities can use to "incorporate". Here, we are particularly talking about changing from being an unincorporated association to becoming a SCIO or a company. Becoming incorporated can be an important and positive step for organisations, as trustees of unincorporated associations can be liable if something goes wrong. It can also be important in terms of receiving funding, or being able to enter into particular contracts. However, it does have implications for the charity in terms of their relationship with, for instance, their banks, their insurance companies, HMRC and so on.

In an attempt to make this process as simple as possible for charities, we had offered two options towards incorporation. One of these was, on the surface, viewed by some as a "conversion" process. The hope had been that this process would make it simpler for charities. However, in the end the process led to difficulties. For charities, there was confusion particularly with respect to their dealings with other regulators, banks etc. For us, it made our internal processes confusing and cumbersome, and made it difficult for us to deal effectively with charities. And for other regulatory stakeholders such as the Care Inspectorate, it has sometimes been complicated.

We therefore have done some work looking at the process and have decided that from early November of this year onwards, we will only offer one option for charities looking to incorporate.

The change

The single process will mean that charities who want to incorporate will need to apply for status for a new charity, and seek consent to wind up the existing charity. This will create a level of clarity that will be better for the charity and its relationships with other organisations. It will allow us to be effective in our dealings with charities, and should help charities clarify their status with other regulators and organisations. It will also give charities time to transfer any assets or liabilities.

We have heard some serious concerns about the fact that charities will have to change their name and charity number during the process because we cannot have two charities with the same name on the register at any one time. However, it will be possible for an organisation who is becoming a SCIO to continue having a very similar name. For instance, Save the Porpoise might become Save the Porpoise SCIO. 

One of the most important things will be making sure that charities have the support and guidance they need to incorporate. We will be a key part of making this happen. However, there are many other organisations that are extremely well placed to make sure this support and guidance is as good as possible. We are, therefore, going to work closely with a number of different support organisations to develop joint guidance. The guidance won't just cover what is required in terms of our regulatory purposes. Indeed, what we want to create is a step-by-step toolkit which will give trustees the support they need to complete the process. This guidance won't be available until early 2017, but interim guidance will be available on the website for those applying before then.