Stephen Lloyd

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

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

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

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

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

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


Formation and regulation of CICs

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


Debt

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


Governance

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

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.

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

Putting the “Social” in Social Enterprise

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

Uses of CICs

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

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 protected]

Economy & Finance

Stephen Lloyd