COMMUNITY INTEREST COMPANIES

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• COMMUNITY INTEREST COMPANIES
• (CICs)

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COMMUNITY INTEREST COMPANIES CICS

• MALCOLM GILBERT
• Partner head of Public Law

m.gilbert_at_ashfords.co.uk www.ashfords.co.uk
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• Community interest companies will harness the
  entrepreneurial spirit of individuals for the
  benefit of their communities, creating new ways
  to provide goods, services and additional social
  benefits such as employment and training.
• Jacqui Smith, Industry and Regions Minister
• December 2004

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WHAT ARE CICs?

• A new type of company, but still a company
• Designed for social enterprises using profits and
  assets for good of community
• Special features to ensure CIC genuinely for
  benefit of the community
• Community Interest Test
• Profits/assets locked to further community
  purposes of CIC
• Independent regulator to be appointed by
  Government
• Prescribed documents, including Memorandum and
  Articles of Association

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WHY DO WE NEED CICs?

• Companies without charitable status - difficult
  to ensure income/assets are protected
• Not-for-profit organisations difficult to get
  finance from lending organisations
• CIC status should solve both problems

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WHAT ENTERPRISES ARE SUITABLE FOR CIC STATUS?

• Local community needs childcare, affordable
  housing, leisure, community transport
• Not intended for core public services such as
  hospitals or schools, but can support them
• Excluded companies and activities e.g. companies
  set up for political purposes

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CICs AND CHARITIES

• A CIC is not a charity
• Possible to convert a charity into a CIC and vice
  versa, but the consequences need to be considered
  before doing so
• Charities not subject to a community interest
  test, but stringent rules for charitable status

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THE COMMUNITY INTEREST TEST

• The Community Interest Test -
• whether a reasonable person might consider
  that the carrying on of activities in furtherance
  of the object is for the benefit of the
  community
• No guidance yet on meaning of community
  possibly from new CIC Regulator.
• In the interests of the community
• Be able to satisfy the regulator that they are
  doing just that light touch approach
• A Community Interest Statement (no template yet)
  to the regulator but must include a declaration
  and a description of the intended activities
• Annual community interest company report

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THE ASSET LOCK

• Assets protected for pursuit of community
  benefit, including post winding-up
• Prescribed objects, Memorandum and Articles of
  Association to achieve this
• No transfers, distribution or payments except for
  full consideration
• Provisions on voting rights and membership
• Assets can be used as collateral for finance

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SHARE CAPITAL

• Provisions for CICs with dividend and
  non-profit shares
• Decision-making at meetings not to be controlled
  by dividend shareholders
• The dividend cap on dividend shares will be -
• Set by Regulator on creation of CIC or when
  shares issued
• Dividend calculated as of paid-up value of
  shares
• Caps which refer to fluctuating index will take
  index at beginning of financial year in which
  dividend paid
• Eg. Paid-up value of dividend share is 2 per
  share. Cap on date of issue is set at 6 plus
  Bank of England base rate. At the start of the
  financial year in which dividend is paid, the
  base rate is 4.5. The maximum dividend will
  therefore be 10.5 of 2, or 21 pence per share

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FINANCE AND TAXATION

• Funding options include grants, donations and
  loans from financial institutions
• Dividend shares (with capped dividend)
• No special tax status same as any other company
• Community Investment Tax Relief (CITR) to
  investors in businesses in deprived areas via
  Community Development Finance Institutions
  (CDFI)
• CITR tax relief of 5 per annum available to
  investors in a CDFI which then lends to, or
  invests in, a CIC

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REGULATION AND CONTROL

• Regulator to ensure CIC delivers for the
  community
• Light touch regulation to maintain confidence
  in CICs
• Company default condition(s) must be satisfied
  before any intervention
• Powers of intervention include -
• Investigation, audit of accounts, civil
  proceedings
• Powers of appointment director, manager
• Orders vesting/disposal of property, share
  transfer
• Dissolution, winding up, restoration (and of
  reversal)

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TIMETABLE AND NEXT STEPS

• Statutory framework in place from 1 July 2005
• Detailed regulations currently in draft form
  (consultation closed 4th January 2005 final
  version expected Spring 2005 to take effect in
  July 2005)
• Preparatory work can start now including
  drafting of documents once final regs are
  published