SLCVO Blog 11 September
Updated: 4 days ago
This week's blog explores what a community group is, how community organisations differ from the public and private sectors, the range of legal structures and operating models available.
Community groups are at the heart of local life. They run village halls, support older people, organise sports activities, protect community assets, deliver local services and help tackle social challenges. They are often created by local people who want to make a positive difference in their community.
However, when people first begin exploring how to establish a community organisation, they are often faced with unfamiliar terms such as SCIO, CIC, social enterprise and development trust. Understanding the difference between these terms can be confusing, particularly as some describe a legal structure while others describe how an organisation operates. This blog aims to explain these concepts.
What is a Community Group?
A community group is an organisation created by people who come together to address a need, opportunity or issue within a community. Unlike businesses, their primary purpose is usually community benefit rather than profit. Unlike public bodies, they are independent and led by local people or volunteers.
Community groups can be formal or informal and may focus on:
Community facilities and assets
Health and wellbeing
Youth activities
Arts and culture
Sports and recreation
Environmental projects
Transport and housing
Support for vulnerable people
At their core, community groups exist to create positive change for communities rather than generate profit for owners or shareholders.
Community, Public and Private Sectors: What's the Difference?
The Public Sector purpose is to deliver public services and implement government policy. It includes organisations funded and controlled by government. Examples include:
Local authorities
NHS services
Schools and colleges
Police Scotland
Government agencies
The Private Sector consists of businesses owned by individuals, partnerships or companies. Their primary purpose is to generate profit for owners or shareholders. Examples include:
Shops
Hotels
Construction firms
Consultants
Manufacturers
The Third Sector sits between the public and private sectors. Their purpose is to create social, environmental or community benefit. Any profits generated are usually reinvested into their mission. Examples include:
Charities
Community associations
Development trusts
Social enterprises
Community sports clubs
What is a Legal Structure?
A legal structure is the formal type of organisation you choose to become.
It determines:
Who owns the organisation
Who is responsible for decision-making
Liability of members and directors
How assets are protected
How profits can be used
Which funding opportunities are available
Choosing the right legal structure is one of the most important decisions a community group will make.
Scottish Charitable Incorporated Organisation (SCIO)
A SCIO is a charity with its own legal identity, separate from its trustees and members. This means it can enter into contracts, employ staff, own property, hold leases, borrow money and take legal action in its own name. One of the main advantages of a SCIO is that it provides trustees with limited liability, helping to protect them from personal responsibility for the organisation's debts and commitments, provided they act lawfully and fulfil their duties properly.
Every SCIO must have a constitution, a principal office in Scotland and at least two members. It must use its assets solely to further its charitable purposes. Unlike other organisations, a SCIO only exists while it remains a registered charity with OSCR, making charitable status central to its legal identity and operation. A two tier SCIO is a membership organisation where the members elect the Trustees. A single tier SCIO is where the members and the Trustees are exactly the same people.
Governance
Some charity trustee duties apply to members
Minimum of one members’ meeting every year
Bar on transfer of membership
Minimum of 3 charity trustees
Duty to keep and supply to the public a register of charity trustees; and to keep and supply to the members a register of members
Advantages
Limited liability for trustees
Widely recognised by funders
Can own property and employ staff
Charitable status provides credibility
Challenges
Must meet charitable purposes
Subject to charity regulations and reporting
Assets must remain for charitable benefit
Best for
Community services
Village halls
Wellbeing projects
Community facilities
Find out more about SCIO’s on the OSCR website
Company Limited by Guarantee (CLG)
A CLG is a legal structure commonly used by charities, community organisations and membership bodies. Instead of shareholders, it has members who oversee the organisation, while directors are responsible for its governance and management. The company is registered with Companies House and must comply with company law requirements, including annual reporting and accounts.
A CLG has its own legal identity, allowing it to enter into contracts, employ staff, own property and hold assets in its own name. Members have limited liability, usually restricted to a nominal guarantee of £1 if the company is wound up. If its purposes are charitable and it meets the charity test, a CLG can also apply for charitable status and access associated tax benefits and funding opportunities.
Governance
Defined statutory procedures for meeting, resolutions, etc.
Additional statutory duties on directors, which in certain cases exceed duties of charity trustees.
Must produce accrued accounts no matter the size of turnover.
Must keep up to date records of Board members and inform Companies House of changes.
Must keep register of members.
Directors liable for fines imposed for late annual returns.
Advantages
Well-established structure
Can become a charity
Suitable for larger organisations
Good governance framework
Challenges
Dual regulation if charitable
More administrative requirements
Best for
Larger community organisations
Membership organisations
National and regional charities
Find out more about Companies Limited By Guarantee on the .Gov website
Community Interest Company (CIC)
A CIC is a special type of limited company designed for organisations that want to use business activities to create social or community benefit. A CIC allows an organisation to trade, employ staff, enter into contracts, own assets and generate income while ensuring that its profits and assets are used primarily for community purposes rather than private gain. CICs are regulated by Companies House and the Office of the Regulator of Community Interest Companies and must pass a Community Interest Test that demonstrates how their activities benefit the community.
They also have an asset lock, which helps protect community assets and ensures surpluses are reinvested into achieving the organisation's social aims. Unlike charities, CICs do not receive charitable tax reliefs, but they are often more flexible for organisations that intend to trade extensively or operate in a business-like manner while maintaining a clear social purpose.
Governance
The same as for other limited companies, but subject to additional regulation to ensure community benefits. Can pay limited dividends to private investors.
Advantages
Suitable for trading activities
Demonstrates social purpose
Can earn income through contracts and sales
Asset lock protects community benefit
Challenges
More company reporting requirements
Less access to charitable funding
May not qualify for some grant programmes
Best for
Trading organisations
Social enterprises
Service delivery organisations
Find out more about CICs on the .Gov website
Co-operative Society
Halfway between a registered company and an unincorporated association. It has rules of association yet is an incorporated body with the benefit of limited liability. Must register with the Financial Conduct Authority (FCA) Members have limited liability, but without all the requirements associated with limited liability under the Companies Acts. Co-operatives can hold property, enter into leases and employ people.
Governance
Defined set of rules
Committee/officers manage on behalf of members.
One member, one vote.
Advantages
Member ownership
Democratic decision-making
Supports community and economic development
Challenges
Can be more complex to establish
Requires active member participation
Best for
Community shops
Energy projects
Housing projects
Shared ownership enterprises
Find out more about Co-operatives on the Co-operatives Uk website https://www.uk.coop/
Community Benefit Society (BenCom)
A Community Benefit Society (BenCom) is an incorporated organisation established to deliver benefits for the wider community rather than solely for its members. Registered with the Financial Conduct Authority (FCA), it combines some of the flexibility of a community association with the legal protections of an incorporated body. A BenCom can own property, enter into leases, employ staff and enter into contracts in its own name, while providing members with limited liability. It is governed by a set of registered rules and operates on the democratic principle of one member, one vote.
If its purposes are charitable and provide public benefit, a BenCom may also be eligible for charitable status and associated tax benefits. It is particularly well suited to community ownership projects, asset transfers, community businesses and renewable energy initiatives.
Find out more on the DTAS website https://dtascommunityownership.org.uk/resource/community-benefit-societies/
Unincorporated Association
An Unincorporated Association is the simplest and most common type of community group. It is formed when a group of people come together around a shared purpose, usually governed by a constitution and managed by a committee. Unlike a SCIO, CIC or company, it does not have its own legal identity and cannot enter into contracts, own property or employ staff in its own name.
Advantages
Simple and inexpensive to set up
Minimal reporting requirements
Suitable for volunteer-led groups
Can apply for some grants and funding
Flexible and easy to manage
Challenges
No separate legal identity
Committee members may be personally liable for debts or legal claims
Cannot own assets or property in its own name
May face restrictions when applying for larger grants or contracts
Less suitable for employing staff or managing significant assets
Best for
Small community groups/clubs
Informal volunteer organisations
Understanding Operating Models
A legal structure is what you are legally.
An operating model is how you work and what you do.
The same legal structure can support many different operating models. For example, a SCIO could also be a social enterprise, development trust or community sports organisation.
Social Enterprise
A social enterprise is a business that trades to achieve social or environmental aims.
Key features:
Earns income through trading
Reinvests profits into its purpose
Focuses on social impact
Common legal structures:
CIC
SCIO
Company Limited by Guarantee
Co-operative
To find out more information watch this video by Social Enterprise Scotland https://youtu.be/Lz5XB2a3bTI?si=myC2vRwjVHmavy13
Development Trust
A development trust is a community-led organisation that aims to improve an area's social, economic and environmental wellbeing.
Key features:
Community-led
Asset ownership often involved
Long-term local development focus
Common legal structures:
SCIO
Company Limited by Guarantee
Community Benefit Society
For more information visit the DTAS website www.dtas.org.uk
Community Amateur Sports Club (CASC)
A CASA is a sports club that is registered with HM Revenue & Customs (HMRC) and operates primarily to promote participation in amateur sport. CASC status provides access to a range of tax benefits, including Gift Aid on donations and certain tax reliefs, helping clubs maximise the resources available for sporting activities.
To qualify, a club must be open to the whole community, organised on an amateur basis and have the promotion of one or more eligible sports as its main purpose. Membership and access to facilities must be available without unfair discrimination, and fees should not create significant barriers to participation
Download the Sports Club Accounting factsheet here https://www.sportsclubaccounting.co.uk/uploads/2/6/0/6/26062533/sca_-_community_amateur_sports_clubs_factsheet.pdf
Social Firms
Social Firms are a distinct type of social enterprise where the social mission is to create employment, work experience, training and volunteering opportunities for people who face significant barriers to employment – in particular, people with a disability (including mental ill health and learning disability) substance abuse issue, a prison record, homeless issue and young people.
Key features:
Operates as a business
Significant proportion of workforce faces disadvantage
Trades goods or services
Common legal structures:
CIC
Company Limited by Guarantee
Co-operative
For more information visit the Social Firms Europe website
Which Legal Structure is Most Suitable?
There is no single "best" structure. The right choice depends on your purpose, activities, funding plans, governance arrangements and long-term ambitions.
For many community organisations in Scotland, the SCIO has become the most common and flexible option, offering charitable status, limited liability and strong access to funding. However, organisations intending to trade heavily may find a CIC or Co-operative model more suitable.
The key question is not "What legal structure should we be?" but rather "What are we trying to achieve for our community?" Once that is clear, choosing the right structure becomes much easier. Next weeks blog will look at this.
How SLCVO Can Help
SLCVO can support groups from the initial idea through to establishing a formal organisation. We can help you identify community need, define your purpose, explore legal structures, develop governing documents and understand regulatory requirements. We provide practical guidance on constitutions, articles of association and society rules, helping ensure your organisation has the right foundations in place. Having someone to discuss ideas and documents with can help avoid common issues, strengthen governance and support long-term success. Whether you are starting a new group, taking on a community asset or developing a social enterprise, SLCVO can help you navigate the process.
If you would like to discuss the support we provide to start-up groups email
Blog produced with the support of Microsoft Copilot
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