Managing community funds

Development trusts, charities and community councils

There are various references to development trusts and community councils in these pages and some explanation of the terms may be helpful. Development Trust (DT) and Anchor Organisation (AO) are generic terms and do not refer to one legal structure, nor does the term “Trust” define a specific structure. These terms refer to community-led, and sometimes owned, organisations with a wide range of activities guided by the principle that they act as a focal point for community development. They can own or manage community assets and act to develop social enterprise to build strong and resilient communities.

Whether or not a DT or AO will be an appropriate vehicle to manage a fund will depend on their governing documents: a constitution for an unincorporated organisation, or the Memorandum and Articles (or latterly just “The Articles”) for an incorporated organisation. In each case, the governing documents would have to clearly state that the group had the legal power to receive and hold income on behalf of the community and the ability to redistribute it.

In the case of a small fund, an unincorporated organisation or a traditional trust could manage and redistribute income, but accountability is not enshrined in their structures. Incorporation (creating a company) would provide more reassurance in that the company would be required to keep records and report annually (usually to Companies House).

There are still various choices: Company Limited by Guarantee (CLG), Company Limited by Shares (CLS), Community Interest Company (CIC), Scottish Charitable Incorporated Organisation (SCIO), Industrial and Provident Society (IPS) and variations of these. One variation to consider is charitable status. A CLG with a membership and charitable status is probably the most flexible model, but also has the most complex reporting requirements. The advantages are full accountability, tax benefits and membership control. On the last point, although directors have responsibility for the day-to-day management of a CLG, it is members who have the ultimate responsibility. This is exercised through general meetings – either annual (AGM) or extraordinary (EGM).

Trusts, in a traditional sense, are unincorporated organisations defined by a deed under the Trust (Scotland) Act 1921, although the duties of trustees are governed by more recent legislation, The Charities and Trustee Investment (Scotland) Act 2005. The terms trustee and director are sometimes interchanged. In legal terms, a company may call their governing body a board of trustees, but they are directors and are governed by company law, The Companies Act 2006.

SCIO is an interesting newer form of charity, regulated solely by the Office of the Scottish Charity Regulator (OSCR), which may provide an alternative form of fund management organisation. The SCIO was first defined in the 2005 Act (see above) but only came into existence in 2011.

Community councils were introduced in 1975 under the Local Government (Scotland) Act 1973. Their main purpose is to represent the views of their constituents to local government or other agencies although they sometimes get involved in other activities such as fund raising, events and environmental and educational projects. Although in some areas community councils are seen as part of the local democracy they are neither part of local government nor are they purely voluntary bodies. This has led to a diversity in the way they operate and how they are perceived by their community. By definition they are not legal companies in their own
right, although they could support the formation of a suitable vehicle to manage income and at least have some reference to democracy and accountability to their community.

Whatever vehicle is chosen to manage the fund, the most important feature will be community input and engagement.  Some governing structures make this easier than others.

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