Focusing the Company: Community Interest Companies in the UK


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Speaker: Stephen Lloyd
Bates Wells & Braithwaite London LLP

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Focusing the Company: Community Interest Companies in the UK

  1. 1. <ul><li>Stephen Lloyd </li></ul><ul><li>Bates Wells & Braithwaite London LLP </li></ul><ul><li>Re Focusing the Company : </li></ul><ul><li>Community Interest Companies </li></ul><ul><li>in the UK </li></ul><ul><li>18 November 2008 </li></ul>
  2. 2. Community interest company (CIC) <ul><li>Tailored for social enterprise* </li></ul><ul><li>Asset lock </li></ul><ul><li>Community interest test </li></ul><ul><li>Payment of directors </li></ul><ul><li>Equity finance </li></ul><ul><li>Cannot be a charity </li></ul><ul><li>* Social enterprise – a profit making business set up to tackle a social or environmental need </li></ul>© Bates Wells & Braithwaite 2007
  3. 3. CICs – The Raw Statistics <ul><li>2225 CICs since its inception in 2005 </li></ul><ul><li>Number of CICs in the UK </li></ul><ul><li>Incorporations 1,617 </li></ul><ul><li>Conversions 274 </li></ul><ul><li>Total 1,891 </li></ul><ul><li>Conversion to Charity 3 </li></ul><ul><li>Conversion from Charity 3 </li></ul><ul><li>Dissolutions 21 </li></ul><ul><li>Figures from CIC Regulator Quarterly Report April –June 2008 </li></ul><ul><li>Compare approximately 8000 industrial & provident societies </li></ul>
  4. 4. Types of CICs in the UK <ul><li>Public Companies 0 </li></ul><ul><li>Incorporations limited by guarantee 1,258 </li></ul><ul><li>Incorporations limited by shares 359 </li></ul><ul><li>Conversions limited by guarantee 125 </li></ul><ul><li>Conversions limited by shares 146 </li></ul><ul><li>Charities converting to a CIC 3 </li></ul><ul><li>Total 1,891 </li></ul><ul><li>Figures from CIC Regulator Quarterly Report April - June 2008 </li></ul>
  5. 5. Analysis by Sector of CICs in the UK <ul><li>Group A - Agriculture, Hunting and Forestry 7 </li></ul><ul><li>Group B - Fishing 0 </li></ul><ul><li>Group C - Mining & Quarrying 0 </li></ul><ul><li>Group D - Manufacturing 49 </li></ul><ul><li>Group E - Electricity, Gas and Water Supply 18 </li></ul><ul><li>Group F - Construction 9 </li></ul><ul><li>Group G - Wholesale, Retail; Certain Repair 66 </li></ul><ul><li>Group H - Hotels and Restaurants 38 </li></ul>
  6. 6. Analysis by Sector of CICs in the UK (cont) <ul><li>Group I - Transport, Storage & Communication 53 </li></ul><ul><li>Group J - Financial Intermediation 19 </li></ul><ul><li>Group K - Real Estate, Renting & Business 377 </li></ul><ul><li>Group L - Public Administration & Defence 19 </li></ul><ul><li>Group M - Education 402 </li></ul><ul><li>Group N - Health and Social Work 308 </li></ul><ul><li>Group O - Other Social & Personal Services 667 </li></ul><ul><li>Group P - Private Households with Employees 1 </li></ul><ul><li>Group Q - Extra Territorial Organisations 1 </li></ul><ul><li>Total 2,034 </li></ul><ul><li>Figures from CIC Regulator Quarterly Report April - June 2008 </li></ul>
  7. 7. CIC test <ul><li>Might a reasonable person consider that its activities are being carried on for the benefit of the community? </li></ul><ul><li>Community includes a section of community, but not just employees </li></ul><ul><li>Cannot have political purpose </li></ul><ul><li>Cannot be a charity </li></ul>© Bates Wells & Braithwaite 2007
  8. 8. Formation and regulation of CICs <ul><li>Companies House </li></ul><ul><li>Incorporation/conversion </li></ul><ul><li>Community interest statement on formation </li></ul><ul><li>Annual report to CIC Regulator </li></ul>© Bates Wells & Braithwaite 2007
  9. 9. Asset lock <ul><li>No transfer or distribution of assets except </li></ul><ul><ul><li>at full value </li></ul></ul><ul><ul><li>to specified asset locked body </li></ul></ul><ul><ul><li>to another asset locked body with consent of Regulator </li></ul></ul><ul><ul><li>for the benefit of the community </li></ul></ul><ul><ul><li>payment of limited dividends </li></ul></ul><ul><ul><li>Restrictions on performance related interest </li></ul></ul>© Bates Wells & Braithwaite 2007
  10. 10. Debt <ul><li>Loans – secured or unsecured </li></ul><ul><li>No cap on normal interest </li></ul><ul><li>Cap on performance-related interest </li></ul><ul><li>4% above base rate </li></ul>© Bates Wells & Braithwaite 2007
  11. 11. Equity <ul><li>Dual cap on dividend flow: </li></ul><ul><ul><li>maximum annual dividend </li></ul></ul><ul><ul><li>5% above base rate </li></ul></ul><ul><ul><li>Total 35% net distributable profits </li></ul></ul><ul><li>Winding up/sale of shares to company: </li></ul><ul><ul><li>shareholders get par value </li></ul></ul><ul><li>Can sell to third party at market rate </li></ul>© Bates Wells & Braithwaite 2007
  12. 12. Governance <ul><li>Paid board </li></ul><ul><li>Not volunteers </li></ul><ul><li>Owner managed </li></ul>
  13. 13. Case Study 1: The Expert Patients Programme CIC <ul><li>Former government programme established as a CIC in October 2006 </li></ul><ul><li>Programme for and delivered by people with chronic or long-term health condition e.g. arthritis, heart failure, diabetes, MS. </li></ul><ul><li>Aims to: </li></ul><ul><ul><li>promote patient awareness and self-management of their condition </li></ul></ul><ul><ul><li>Reduce reliance on medical profession </li></ul></ul>
  14. 14. Case Study 1: Expert Patients Programme CIC (cont) <ul><li>Course topics include healthy eating, dealing with pain and fatigue, coping with depression </li></ul><ul><li>Currently 12,000 course places per year with aims to increase this to over 100,000 by 2012 </li></ul><ul><li>Courses aimed at people with different long-term conditions, of varying ages and ethnicity across England. </li></ul>
  15. 15. Case Study 1: Expert Patients Programme CIC (cont) <ul><li>Funded by initial government grant </li></ul><ul><li>Would not have gone to a for profit business </li></ul><ul><li>Volunteer board not appropriate </li></ul><ul><li>Aims to be financially self standing </li></ul>
  16. 16. Putting the “Social” in Social Enterprise <ul><li>Relationships with staff </li></ul><ul><li>Relationships with stakeholders </li></ul><ul><li>Establishing the triple bottom line </li></ul>
  17. 17. Tax Issues <ul><li>Need for reform </li></ul><ul><li>UK tax breaks for giving/investment in high risk high growth commercial businesses </li></ul><ul><li>Nothing yet for slow return, capped return or low capital growth </li></ul>
  18. 18. Uses of CICs <ul><li>Taking over state assets </li></ul><ul><li>Joint ventures, charity and commercial partner </li></ul><ul><li>New community focused businesses </li></ul>
  19. 19. CIC Reform <ul><li>Drop the 5% + Base Rate cap on dividends </li></ul><ul><li>Suggest 25% max income return on investment </li></ul>
  20. 20. <ul><li>Stephen Lloyd </li></ul><ul><li>Senior Partner </li></ul><ul><li>Charity and Social Enterprise Department </li></ul><ul><li>Bates Wells & Braithwaite London LLP </li></ul><ul><li>2-6 Cannon Street </li></ul><ul><li>London </li></ul><ul><li>EC4M 6YH </li></ul><ul><li>Tel: 020 7551 7711 </li></ul><ul><li>Email: [email_address] </li></ul>