A guide to third sector trading - WCVA

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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). 98
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 Ineligible activities: The government will not allow the regulator to get involved in political arguments about community benefit, so some types of organisation will be ineligible to become CICs. These include bodies which: • are or which support political parties • carry out political campaigning or engage in political controversy, including campaigning for and against vivisection, abortion, the freedom to smoke etc. Other regulations: • existing companies are able to convert to CICs Contact The CIC Regulator: CIC Team Room 3.68 Companies House Crown Way Cardiff, CF14 3UZ Tel: 029 2034 6228 (this is a 24-hour voicemail service) Web site: www.cicregulator.gov.uk • changes to a company’s objects must be approved by the Regulator. Applications: The application process is like that for other companies in most respects, although there is an extra form for declaring the applicant’s community interest. Forms and guidance information can be downloaded from the CIC web site. 99
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A guide to third sector trading - WCVA

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