A guide to third sector trading - WCVA

It’s an idea, but is it business? A guide to third sector trading
1: Getting
started
2: First steps 3: Business
planning
4: Legal and
governance
5: Funding
and
resourcing
6: Financial
controls
7: Managing
growth
8: Management
and
governance
9: Social
enterprise
10: Sources
of support
Key provisions of the legislation
Basic arrangements: CICs:
• can be either companies limited by guarantee or companies
limited by shares (under the 1985 Companies Act)
• follow the same basic incorporation process (£20 fee) and
annual reporting procedures with annual fees as other
companies (with some extra elements)
• must be committed to pursuing community interests, and have
to satisfy the CIC Regulator when they are incorporated that
they satisfy a ‘Community Interest Test’
• are required to produce an annual ‘community interest report’ to
show the steps taken to pursue public and community benefits
• be required to reflect the role and importance of local
stakeholders (staff, beneficiaries, funders, shareholders) by
involving them as fully as possible in the company and to report
on the efforts which they make to involve them.
Assets and finance: CICs
• have a permanent statutory ‘lock’ on the value of their profits
and assets – which means that they can trade and make profits,
but the companies’ resources cannot be taken over and used for
private benefit
• be able to use assets as collateral for loan finance
• be able to raise capital by the sale of shares (although the
dividends payable on the shares will be capped to limit
distribution of profits to shareholders) but …
• … be protected from adverse takeovers and prevented legally
from being controlled completely by investors
• be free to set up subsidiaries – either other CICs or non-CICs
without the cap on dividend payments
• be able to transfer surpluses to charities and other CICs
provided stakeholders and the Regulator agree
• be required to use assets for community benefit if they are
wound up – ie passed to a charity or another CIC (and not allow
them to be distributed to members)
• be subject to insolvency law – ie they can lose their assets if they
become insolvent
• prevent assets which have been provided by donors from being
seized by unsuitable creditors if the CIC becomes insolvent (the
donor can attach conditions to their donation).
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