Scottish charities come in many different legal forms – companies limited by guarantee, Scottish Charitable Incorporated Organisations ("SCIOs"), trusts and unincorporated associations to name a few. By far the two most common incorporated bodies we tend to see being used as the legal vehicle of choice for charities in Scotland are SCIOs and companies limited by guarantee. In fact, in a report published by the Scottish Charity Regulator ("OSCR") in March 2023, SCIOs were found to be the legal form of choice for a quarter of all Scottish charities, whilst companies were chosen by 16%.
In an effort by the sector to make the setting up and running of a charity easier, many organisations have developed model constitutions which can be relatively easily tailored by the user – typically using a 'completing the blanks' approach – to suit that organisation's needs. Whilst these models can be a great resource for smaller charities or as a starting point for larger organisations, users should be aware that it is not possible to cover all potentially relevant aspects in one template and so there are risks inherit in simply adopting these models without taking further advice. We do however have some helpful tips on particular points to consider in more depth when utilising model constitutions.
Company legislation – Model Articles of Association
It is worth noting that in addition to the templates developed by the sector, The Companies (Model Articles) Regulations 2008 provides a form of articles known as 'model articles' which can be used by private limited companies. However, a charitable company should not adopt the model articles blindly. As we will come on to discuss, there are many aspects to consider when it comes to a charitable organisation's constitution – such as the membership structure and the specific objects of the charity. The model articles for companies limited by guarantee as set out in the 2008 Regulations do not tend to be a helpful model for charitable organisations and we would recommend any organisation using these as a model to seek legal advice.
Charitable objects
To be registered as a Scottish charity, an organisation must demonstrate that it meets the 'charity test' as set out in the Charities & Trustee Investment (Scotland) Act 2005 (the "2005 Act") – that is broadly that it has only charitable purposes and that it provides public benefit in achieving those purposes. The organisation's objects clause (i.e. the purpose for which it exists) should therefore be worded in such a way as to demonstrate that it exists to further only charitable purposes. As there are 16 charitable purposes set out in the 2005 Act (including the rather wider "any other purpose that may reasonably be regarded as analogous" to any of the stated charitable purposes which has led to the development of 3 others) and a wide range of activities carried out by charities, it is not possible for a template to provide any meaningful detail on how to draft an appropriate clause suitable for a charity's specific purposes. This is therefore one area to pay particular attention to when using a model constitution. Helpful information on the meaning of each charitable purpose and the activities which might further each charitable purpose can be found on OSCR's website or you may wish to speak to a specialist charity law advisor.
Membership
Another tip we would give is to carefully consider your membership structure. As templates are made to suit as wide an audience as possible, they often provide for only one class of membership; however, in a number of cases this might not be the most appropriate membership structure. For example, it might be helpful to create a class of membership who are entitled to receive communications relating to the charity's work and attend members' meetings, but who do not have voting rights.
Further, templates often also provide for generic membership qualification criteria, such as the applicant must support the objects and activities of the organisation. For many charities this is often not sufficient and the organisation will want alternative or additional criteria – for example, a charity based in a particular community may wish to provide that only those who reside in that community can be members.
Templates may also not take into account the range of different legal persona membership may be open to, such as individuals, corporate bodies and unincorporated bodies. In the case of the latter, there are more complex provisions to be incorporated in the constitution than the template may provide for as an unincorporated body has no legal personality and therefore cannot itself be a member of an organisation.
Board structure
The structure of your board is another area requiring careful consideration, especially when using a template constitution. Templates often provide for a situation whereby new charity trustees are appointed by the existing board. However, in a membership-led organisation it is often desirable to have a majority of the board elected by the membership. It may also be appropriate for certain stakeholders to have the right to appoint an individual to the board. Further, the ability for the board to appoint a small number of charity trustees to fill an identified skills gap can also be helpful. Such factors may not be covered in a template, therefore seeking legal advice can help to ensure that your board is meeting the needs of your organisation. And that is before you consider terms of office, whether those terms should be linked to the AGM, the ability to co-opt and so on.
Quorum
An appropriate quorum for members' meetings and board meetings is another point to think carefully about as templates cannot provide for a quorum which would be suitable for all charities given the varying range and size of organisations which may use the template. For example, an organisation with a membership of 10 may find that a quorum of 3 is suitable, whereas a charity with over 200 members may wish to provide for a far higher quorum for members' meetings. Further, in addition to the number required to constitute a quorum, it may be appropriate to provide that a quorum is not present unless certain individuals are present. More detailed quorum requirements such as this will often not be a feature of templates and so seeking advice to help ensure that the quorum provisions are appropriate for your organisation is recommended.
Next steps if you are setting up a charity or reviewing your charity's constitution
Whilst there is benefit in using model constitutions in terms of time and cost savings, the above points highlight that there is more to be considered than what a 'one size fits all' template is able to capture. If you are about to embark on setting up a new charity or if you are considering reviewing your existing charity's constitution to ensure that it is fit for purpose and are considering using one of the available model constitutions, we would therefore recommend that you ensure that you consider the points above in particular and also consider seeking legal advice to ensure that all matters are fully considered and dealt with appropriately – potentially avoiding running into issues at a later and having to undertake a lengthy (and perhaps costly!) process down the line in order to resolve any issues. Please do not hesitate to get in touch with one of our contacts below if you would like to discuss further.
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