The Scottish Government

SCOTTISH LAW COMMISSION - DISCUSSION PAPER ON UNINCORPORATED ASSOCIATIONS

Unincorporated associations in Scotland

1. The purpose of this SLC Discussion Paper is to seek comment on legislative reform which would grant separate legal personality to unincorporated associations The attribution of legal personality would allow the associations to enter into contracts, employ staff, offer protection for members from liability for damages for negligence or breach of contract, (but not personal negligence), to own property and to raise or defend court actions.

2. The law of unincorporated associations is a reserved matter under Section C1 of Schedule 5 to the Scotland Act 1998 insofar as it concerns the creation, operation, regulation and dissolution of types of business association, other than charities. Legislation implementing any recommendations would be beyond the competence of the Scottish Parliament and would require to be passed by the United Kingdom Parliament.

Proposals

3. The paper contains proposals for the treatment of unincorporated associations as separate entities with legal personality. It discusses two possibilities, namely:

· a statutory scheme in which legal personality is acquired voluntarily by registration in a new public register; and,

· a scheme which attributes legal personality to associations which fulfil certain minimum criteria, either optionally or automatically.

Attribution of legal personality

4. The paper considers various criteria which could be applied in determining whether an association is to be treated as a legal entity and suggests the adoption of a written constitutive document containing certain minimum provisions, for example:

· name;

· objects;

· criteria for membership and for election of office-bearers; and

· rules for distribution of assets on dissolution.

5. It addresses a number if issues in relation to the attribution of legal personality, including:

• the situation of associations which, though meeting the minimum criteria, prefer not to be treated as legal entities;
• the legal consequences of attribution of legal personality;
• whether it would be preferable to confer certain specific capacities on associations, such as capacity to contract, without according them separate personality;
• the circumstances in which legal personality might be lost by an association in circumstances other than its dissolution;
• whether special provision is needed for large associations which might properly be expected to incorporate rather than continue to carry on their activities with unincorporated status;
• whether there is a need for statutory default provisions for internal governance of associations with legal personality; and
• whether special legislative provision is needed for multi-tiered organisations such as churches and national associations with local branches.

A new corporate vehicle?

6. The paper invites comment on whether there is a need in Scotland for a new corporate vehicle for non-profit making associations which wish to incorporate. At present the corporate vehicle most commonly used is the company limited by guarantee. It acknowledges that a further possibility for charities in Scotland will be to incorporate as, or convert to being a Scottish Charitable Incorporated Organisation (SCIO). No special corporate vehicle is presently available for member-interest associations, such as sports and social clubs. The SLC's preliminary view is that there is no need for a new form of corporate vehicle in Scotland, but it invites comment on whether there is a need either for such a vehicle for non-profit making bodies generally or, specifically, for member-interest associations.

Consequences of proposals

7. The paper addresses certain issues consequential upon the proposals, namely:

· the effect on existing regulatory and penal statutory provisions applicable to unincorporated associations;

· the significance (if any) of legal personality being accorded to certain associations by Scots law where equivalent associations would not be accorded such treatment by the law of other parts of the United Kingdom;

· transitional provisions for associations in existence at the time when a statute implementing our proposals comes into force.

Impact Assessment

8. A preliminary impact assessment concludes that the status quo is undesirable and that attribution of legal personality to unincorporated associations would bring significant benefits and few, if any, costs or adverse consequences. It does recognise that the information presently available as to the potential impact of the proposals on the very large number of associations currently in existence is incomplete.

ANNEX A

List of proposals and questions

1. Have we correctly identified the practical problems created by the absence of recognition by the law of unincorporated associations as separate legal entities? Are consultees aware of problems additional to those which we have identified?

2. Do consultees agree that there is a need for reform of the law relating to the status of unincorporated non-profit making associations?

3. (a) Should unincorporated associations which meet a minimum specified criterion be accorded separate legal personality?

(b) If so, should the association be accorded separate personality generally or only for certain purposes specified by statute?

4. Should the criterion for attribution of separate legal personality be:

(a) minimum number of members;

(b) minimum asset value;

(c) minimum annual income or turnover;

(d) adoption of a constitutive document containing specified minimum provisions;

(e) some other criterion?

5. If separate legal personality were to be accorded to associations upon the fulfilment of a criterion such as number of members, minimum asset value or minimum annual income or turnover, what should the threshold be?

6. If separate legal personality were to be accorded to associations which adopt a constitutive document containing certain minimum provisions, what should those provisions be?

7. As an alternative to automatic attribution of legal personality, should attribution of legal personality be optional and dependent upon either:

(a) registration in a new public register; or

(b) an expression of intention in the association's constitutive document to be treated as a separate legal entity?

8. If either of alternatives 7(a) or 7(b) were to be preferred, should the availability of the option depend upon the association also fulfilling a statutory criterion and, if so, what should that criterion be?

9. Is there merit in providing by statute for registration in a public register of a "statement of authority" to transfer heritable property?

10. (a) Should the effect of the ultra vires doctrine be restricted in relation to the acts of associations with separate legal personality in the same way as it is in relation to acts done by companies?

(b) If so, should the qualification of that restriction which applies to companies which are charities also apply (i) to associations which are charities or (ii) to all associations?

(c) In the absence of any restriction in its constitutive document, should an association be granted by statute the same powers as an individual to do what is necessary or convenient to carry out its objects?

11. Is there a need for a statutory "default" rule governing the distribution of an association's assets on dissolution and, if so, should that rule provide for:

(a) distribution of the assets equally among members; or

(b) application for a public benefit purpose similar to the objects of the association?

12. Where an association is dissolved and funds are disposed of while a creditor of the association remains unpaid, should the creditor be entitled to recover the debt from members:

(a) to the extent that they have received or benefited indirectly from the distribution of association funds; or

(b) to the extent that they have authorised a distribution of assets other than to members,

which, in either case, had the effect of defeating the creditor's claim against the association in whole or in part?

13. Should unincorporated associations be granted certain legal capacities, for example, to contract and to sue and be sued, without attributing legal personality to them?

14. What are the circumstances, other than formal dissolution, in which legal personality should be lost by an unincorporated association?

15. (a) Should an association with separate legal personality be capable of losing its identity (without losing personality) so as to become a different legal person?

(b) If so, in what circumstances?

16. Should there be created a register in which large unincorporated associations meeting certain specified criteria are required to register and, if so:

(a) What should those criteria be?

(b) What should the sanction be for failure to register?

17. Alternatively, should a large association which exceeds certain specified criteria automatically lose its separate legal personality?

18. Is there a need for provision of a set of minimum statutory default governance rules for associations with separate legal personality?

19. If so, what are the rules which require to be provided by statute?

20. Is there a need for special statutory provision for multi-tiered organisations and, if so, what matters should be covered by such provision?

21. Is there a need for a new statutory corporate vehicle in Scots law for non-profit making associations?

22. If so, should it be designed for use by:

(a) any non-profit making association which is not a charity capable of being registered as a SCIO; or

(b) member-interest associations only?

23. Should our proposals conferring legal personality extend only to an association where:

(a) the official address stated in its constitutive document (or other formal agreement among members) is situated in Scotland; and

(b) its management takes place in Scotland?

24. If legal personality were to be automatically conferred, should a transitional period be allowed for opting out of such treatment and, if so, how long should that period be?

25. We would be grateful to receive comments and information as to what consultees regard as the costs and benefits of our proposals. "