Incorporating new protection for charities

No one, not least David Cameron himself, has provided a clear definition of ‘The Big Society’ although many take it to mean greater emphasis on self and communal help, without necessarily involving the State. And this at a time of spending cuts.

Whatever it eventually comes to stand for, The Big Society will, almost inevitably, lead to a greater role being played by charities, whether limited companies or, on the other hand, some arts organisations that might be described euphemistically as more ‘loosely constructed’.

Consequently, the latter may no longer be able to operate on ‘a wing and a prayer’ as many of them have done up to now – all of which makes new charity law in Scotland all the more timely, albeit coincidental to the Prime Minister’s pronouncements on The Big Society.

From 1 April, all new arts charities in Scotland and any existing ones that don’t yet have company status will be able to apply to the Office of the Scottish Charity Regulator to become a ‘Scottish Charitable Incorporated Organisation’ (SCIO). The aim of the new regulation is to make charities, particularly small- to medium-sized ones, more soundly structured from a legal point of view, thus enabling them to achieve the same kind of status as charitable companies without the equivalent set-up and administrative costs that this can involve.

So far, so boring, but in addition to better governance, there are likely to be real, practical, everyday advantages to having the new legal template. Those involved in the management of unincorporated arts organisations, including those who act as volunteers (and especially those with ‘executive’ positions of responsibility) may be unaware of the potential financial exposure that their activities could lead to.

If an arts organisation experiences a substantial loss of capital or earnings, or bills go unpaid, then personal liability could fall on the secretary or treasurer. The group’s director or managing committee could also be held personally liable for any injury or loss caused in any dealings they have with organisation’s staff or membership (or a member of the public) unless proper insurances have been put in place.

The main draw of the SCIO is that becoming ‘incorporated’ will provide arts professionals who run their own business with greater protection from liability and claims from third parties against their own assets. This is the same kind of protection that those involved in the running of a limited company would expect to have and it should help to encourage those people who are keen to get ‘hands on’ in charitable organisations to take up the responsibilities that go with it.

But while one primary purpose of setting up SCIOs is to tackle some of the more negative aspects of being on a charity, there are also positive reasons for it too. A SCIO will be treated as a separate legal entity (just like a company), enabling it to acquire title to property, take on a lease, enter into contracts with third parties and employ staff in the name of the charity. This implies that some arts groups which have, up until now, been less formally regulated can become more professional and efficient in their business dealings without themselves having to take on all the expensive, but necessary, legal trappings of a limited company. At its most basic level this may give these organisations more power to ‘bargain’ for deals on everything from leases of halls and meeting rooms to catering.

SCIO accreditation will be open to any arts organisation in Scotland with charitable objectives and there are no monetary limits, so even a charity with minimal earnings may see a SCIO as a desirable structure if, for example, it holds large levels of non-income producing capital assets. For those arts charities that are already in the shape of a company, conversion to a SCIO will become an option from 1 January next year.

The introduction of the SCIO will be, in itself, be a big step towards better governance of the charity sector in Scotland but Mr Cameron’s pronouncements on The Big Society – no matter how coincidental – seem to emphasise the benefits even further.