Community Asset Transfer

Organisations that can apply

To apply for a Community Asset Transfer your organisation needs to be a community transfer body. This means it must be community controlled.

A community-controlled body does not have to be incorporated, but it does have to have a written constitution which makes clear that members of a community (of place, or of common interest) are in the majority of membership and have control of the Board.

Scottish Government guidance says that a community transfer body constitution must include:

• A definition of the community to which the body relates
• Provision that membership of the body is open to any member of that community
• Provision that the majority of the members of the body is to consist of members of that community
• Provision that the members of the body who consist of members of that community have control of the body
• A statement of the body’s aims and purposes, including the promotion of a benefit for that community
• Provision that any surplus funds or assets of the body are to be applied for the benefit of that community

If you want to apply for full transfer of ownership of a property you must have a membership of at least 20 members and be incorporated as a company, a SCIO (Scottish Charitable Incorporated Organisation) or a BenCom (Community Benefit Company). You must also have a constitution which includes arrangements for what happens to the organisation's assets if it is wound up, to make sure they are passed on to another community or charitable organisation.

Incorporation

Incorporation means that the charity, as a legal entity, can enter into contracts in its own right and the charity trustees do not have the same liability if something goes wrong. There are a number of ways to do this. You could consider forming a ‘limited company’ as well as seeking charitable status.

A limited company

A limited company is a membership organisation formed and registered under the provisions of the Companies Acts. It is incorporated and benefits from limited liability for its members.

It’s a structure that can be chosen by voluntary sector organisations that employ staff, regularly enter into contracts, manage investments, and/or own property and other assets, because limited liability helps to minimise the threat of personal liability for the directors.

It is regulated by Companies House and subject to the Companies Acts and other legislation. If a limited company is charitable then it will be subject to charity law and regulated by OSCR as well.

A limited company has guarantors rather than shareholders, so it is suitable for many voluntary organisations. The members agree to pay a fixed amount known as a guarantee (usually £1) towards the company’s debts if it goes into liquidation.

A limited company is a clear legal entity, separate from the persons involved in it – and can hold property, enter into leases and other contracts, employ people, etc., in its own name. It doesn’t matter if the directors change because it is the company and not the directors that hold title to land, enter into contracts, etc., but changes must be notified to Companies House.

A limited company is generally regarded by funding bodies and public agencies as a more ‘stable’ structure than a voluntary association. Although the company format does provide a very substantial level of protection against personal liability, the limit on liability does not extend to any liability which a person might incur in their capacity as director of the company, as distinct from their capacity as a member. There are a range of legal duties imposed on directors of a limited company which could still give rise to personal liability.

Broadly speaking, it is extremely unlikely that a director would find themselves personally liable as a matter of practice, unless they acted in a manner which was negligent or improper.

Scottish Charitable Incorporated Organisation (SCIO)

Many organisations investigate becoming a Scottish Charitable Incorporated Organisation (SCIO) rather than a charitable company limited by guarantee. This offers all of the same advantages of being a company limited by guarantee with the added benefit of only reporting to one regulator (OSCR). There are two kinds of SCIO.

• one tier SCIO where there are trustees who appoint new trustees and do not have to account to a membership,
• two tier SCIO where trustees are elected by the membership to have decision-making powers and are accountable to the members. To satisfy the requirement to be a “community controlled body, if you choose to be a SCIO, you will need to be a two tier SCIO with a membership of at least 20 members.

Community Benefit Society (BenCom)

A BenCom is a society registered with the Financial Conduct Authority, owned by the members. The society is established for the benefit of the community and not of its members, who do not need to be (though they can be) consumers or workers. Each member has one vote at the AGM, even if they have more than one share. Unlike with a company, the shares are not transferable and can only ever be refunded at par (usually £1). The share can never be worth more than what was paid for them. A BenCom must be established with a social or environmental objective, have a non-profit constitution and an asset lock.

An asset lock is a constitutional device that prevents the distribution of residual assets to members. The purpose of an asset lock is to ensure that the public benefit or community benefit of any retained surplus or residual value is cannot be appropriated for private benefit of members. Asset locks are a defining feature of community shares, because they remove the scope for members to make gains resulting from the dissolution, disposal or conversion of the society into a company.

Advantages

• A BenCom must have a non-profit aim is its main objective, and aims should be consistent with the 6 Co-operative principles.
• Limited liability like a company
• High audit threshold (£90,000 income in a year), so less likely to need a registered auditor
• Exemption from the Financial Services and Markets Act 2000, so can advertise for loan or share investment from the public (e.g. as in a Community Share Offer)
• Investment tax reliefs may be available and favourable tax treatment of interest payments

Disadvantages

• BenComs are not listed at Companies House. This can create problems for credit reference agencies and it is often not possible to get a decent credit rating.
• More expensive to create than a limited company
• If income is more than £90,000 in the previous year, then the accounts must be signed off by a “reporting accountant” who must be a registered auditor.

What is meant by membership of the organisation?

There cannot be an assumption that a paid service user is necessarily a member of the organisation, this would need to be made clear on the application form and members need to understand their responsibilities and be made aware of the organisation’s constitution. Also, need to consider wider access to membership and appropriate application process. The number of members should be included in your application to demonstrate the strength of your organisation.

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