Stephen Lloyd Bates Wells & Braithwaite London LLP Re Focusing the Company : Community Interest Companies in the UK 18 November 2008

Stephen Lloyd

Bates Wells & Braithwaite London LLP

Re Focusing the Company :

Community Interest Companies

in the UK

18 November 2008

Community interest company (CIC) Tailored for social enterprise* Asset lock Community interest test Payment of directors Equity finance Cannot be a charity * Social enterprise – a profit making business set up to tackle a social or environmental need © Bates Wells & Braithwaite 2007

Tailored for social enterprise*

Asset lock

Community interest test

Payment of directors

Equity finance

Cannot be a charity

* Social enterprise – a profit making business set up to tackle a social or environmental need

CICs – The Raw Statistics 2225 CICs since its inception in 2005 Number of CICs in the UK Incorporations 1,617 Conversions 274 Total 1,891 Conversion to Charity 3 Conversion from Charity 3 Dissolutions 21 Figures from CIC Regulator Quarterly Report April –June 2008 Compare approximately 8000 industrial & provident societies

2225 CICs since its inception in 2005

Number of CICs in the UK

Incorporations 1,617

Conversions 274

Total 1,891

Conversion to Charity 3

Conversion from Charity 3

Dissolutions 21

Figures from CIC Regulator Quarterly Report April –June 2008

Compare approximately 8000 industrial & provident societies

Types of CICs in the UK Public Companies 0 Incorporations limited by guarantee 1,258 Incorporations limited by shares 359 Conversions limited by guarantee 125 Conversions limited by shares 146 Charities converting to a CIC 3 Total 1,891 Figures from CIC Regulator Quarterly Report April - June 2008

Public Companies 0

Incorporations limited by guarantee 1,258

Incorporations limited by shares 359

Conversions limited by guarantee 125

Conversions limited by shares 146

Charities converting to a CIC 3

Total 1,891

Figures from CIC Regulator Quarterly Report April - June 2008

Analysis by Sector of CICs in the UK Group A - Agriculture, Hunting and Forestry 7 Group B - Fishing 0 Group C - Mining & Quarrying 0 Group D - Manufacturing 49 Group E - Electricity, Gas and Water Supply 18 Group F - Construction 9 Group G - Wholesale, Retail; Certain Repair 66 Group H - Hotels and Restaurants 38

Group A - Agriculture, Hunting and Forestry 7

Group B - Fishing 0

Group C - Mining & Quarrying 0

Group D - Manufacturing 49

Group E - Electricity, Gas and Water Supply 18

Group F - Construction 9

Group G - Wholesale, Retail; Certain Repair 66

Group H - Hotels and Restaurants 38

Analysis by Sector of CICs in the UK (cont) Group I - Transport, Storage & Communication 53 Group J - Financial Intermediation 19 Group K - Real Estate, Renting & Business 377 Group L - Public Administration & Defence 19 Group M - Education 402 Group N - Health and Social Work 308 Group O - Other Social & Personal Services 667 Group P - Private Households with Employees 1 Group Q - Extra Territorial Organisations 1 Total 2,034 Figures from CIC Regulator Quarterly Report April - June 2008

Group I - Transport, Storage & Communication 53

Group J - Financial Intermediation 19

Group K - Real Estate, Renting & Business 377

Group L - Public Administration & Defence 19

Group M - Education 402

Group N - Health and Social Work 308

Group O - Other Social & Personal Services 667

Group P - Private Households with Employees 1

Group Q - Extra Territorial Organisations 1

Total 2,034

Figures from CIC Regulator Quarterly Report April - June 2008

CIC test Might a reasonable person consider that its activities are being carried on for the benefit of the community? Community includes a section of community, but not just employees Cannot have political purpose Cannot be a charity © Bates Wells & Braithwaite 2007

Might a reasonable person consider that its activities are being carried on for the benefit of the community?

Community includes a section of community, but not just employees

Cannot have political purpose

Cannot be a charity

Formation and regulation of CICs Companies House Incorporation/conversion Community interest statement on formation Annual report to CIC Regulator © Bates Wells & Braithwaite 2007

Companies House

Incorporation/conversion

Community interest statement on formation

Annual report to CIC Regulator

Asset lock No transfer or distribution of assets except at full value to specified asset locked body to another asset locked body with consent of Regulator for the benefit of the community payment of limited dividends Restrictions on performance related interest © Bates Wells & Braithwaite 2007

No transfer or distribution of assets except

at full value

to specified asset locked body

to another asset locked body with consent of Regulator

for the benefit of the community

payment of limited dividends

Restrictions on performance related interest

Debt Loans – secured or unsecured No cap on normal interest Cap on performance-related interest 4% above base rate © Bates Wells & Braithwaite 2007

Loans – secured or unsecured

No cap on normal interest

Cap on performance-related interest

4% above base rate

Equity Dual cap on dividend flow: maximum annual dividend 5% above base rate Total 35% net distributable profits Winding up/sale of shares to company: shareholders get par value Can sell to third party at market rate © Bates Wells & Braithwaite 2007

Dual cap on dividend flow:

maximum annual dividend

5% above base rate

Total 35% net distributable profits

Winding up/sale of shares to company:

shareholders get par value

Can sell to third party at market rate

Governance Paid board Not volunteers Owner managed

Paid board

Not volunteers

Owner managed

Case Study 1: The Expert Patients Programme CIC Former government programme established as a CIC in October 2006 Programme for and delivered by people with chronic or long-term health condition e.g. arthritis, heart failure, diabetes, MS. Aims to: promote patient awareness and self-management of their condition Reduce reliance on medical profession

Former government programme established as a CIC in October 2006

Programme for and delivered by people with chronic or long-term health condition e.g. arthritis, heart failure, diabetes, MS.

Aims to:

promote patient awareness and self-management of their condition

Reduce reliance on medical profession

Case Study 1: Expert Patients Programme CIC (cont) Course topics include healthy eating, dealing with pain and fatigue, coping with depression Currently 12,000 course places per year with aims to increase this to over 100,000 by 2012 Courses aimed at people with different long-term conditions, of varying ages and ethnicity across England.

Course topics include healthy eating, dealing with pain and fatigue, coping with depression

Currently 12,000 course places per year with aims to increase this to over 100,000 by 2012

Courses aimed at people with different long-term conditions, of varying ages and ethnicity across England.

Case Study 1: Expert Patients Programme CIC (cont) Funded by initial government grant Would not have gone to a for profit business Volunteer board not appropriate Aims to be financially self standing

Funded by initial government grant

Would not have gone to a for profit business

Volunteer board not appropriate

Aims to be financially self standing

Putting the “Social” in Social Enterprise Relationships with staff Relationships with stakeholders Establishing the triple bottom line

Relationships with staff

Relationships with stakeholders

Establishing the triple bottom line

Tax Issues Need for reform UK tax breaks for giving/investment in high risk high growth commercial businesses Nothing yet for slow return, capped return or low capital growth

Need for reform

UK tax breaks for giving/investment in high risk high growth commercial businesses

Nothing yet for slow return, capped return or low capital growth

Uses of CICs Taking over state assets Joint ventures, charity and commercial partner New community focused businesses

Taking over state assets

Joint ventures, charity and commercial partner

New community focused businesses

CIC Reform Drop the 5% + Base Rate cap on dividends Suggest 25% max income return on investment

Drop the 5% + Base Rate cap on dividends

Suggest 25% max income return on investment

Stephen Lloyd Senior Partner Charity and Social Enterprise Department Bates Wells & Braithwaite London LLP 2-6 Cannon Street London EC4M 6YH Tel: 020 7551 7711 Email: [email_address]

Stephen Lloyd

Senior Partner

Charity and Social Enterprise Department

Bates Wells & Braithwaite London LLP

2-6 Cannon Street

London

EC4M 6YH

Tel: 020 7551 7711

Email: [email_address]