CIC Association

Serving Community Enterprise

Hello all, im new to the ning network and looking forward to swapping tips and experiences. 
I'm part of a team setting up a CIC in Westminster, London and working with Westminster City Council to set up a membership based organisation offering affordable co-working space for start ups and entrepreneurs from sectors including social, third and ethical. It's a membership based organisation and we focus heavily on providing a peer to peer based learning environment to support startups as a means to access knowledge, resources and investment. The reasons for establishing or business as a CIC are obvious as our outcomes are wider than being financially sustainable - we aim to deliver social outcomes also in terms of supporting growth in the sectors our start ups work in. We aim to integrate our members via an IPS structure as a member of the CIC in addition to the key investors. The purpose is to give meaningful ownership and engagement with our investors in terms of voting rights on how the space is operated, the services they need and also giving weight to the end users in relation to the investors vote. The aims of the IPS are to raise a minority stake of investment but primarily as a governance tool. Does anyone have any experience of such a structure or have any comments on hiw to achieve the effect if not via a IPS? We have been made aware that this use of the IPS may not meet the approval of the FSA as we intend to raise some investment through it. However, for us the purpose of investment raising is to give the members a shareholding- as a union. Legal advice so far without spending heaps of money has not turned up any real guidance. Any comments appreciated! Thanks.

Tags: IPS

Views: 369

Replies to This Discussion

hi alice,

 

I'm a big confused as to why you'd need both an IPS and a CIC - the FSA should be fine with using an IPS to raise investment (its one of the principle features/benefits of a society and the reason why most groups use them -see http://www.communityshares.org.uk/);

 

a community benefit society IPS would also lock in the purposes you describe above (seeking outcomes wider than purely financial) as well as an asset lock, and it would also have de facto charitable status (which may further assist with raising investment);

 

I've known of a few co-working space providers who've happily used the IPS model (for all the reasons above) so am confused as to why there would need to be 2 legal entities?

Adrian, a community benefit society doesnt necessarily have charitable status, but can apply for it. Am i right in saying that if you do apply an asset lock you can only transfer into a CIC at a later stage?

 

I asked Alice to post as to some extent like you I wasnt sure she needed both structures, as either structure you can organise a voting system/ownership model to suit, and I thought this was a great example to highlight the pros and cons of different structures.

Can you offer different types of share in a ben comms?

Is there a limit in the amount of an individual investment?

Can you sell your share for a profit?

Like Adrian I'm a little unsure as to why you need 2 structures - you could for instance achieve both investment and governance participation from a group of members by creating a separate class of shares within the CIC.

IPS structures are indeed best for community share issues, so one key question is whether the membership you want to reach is a fairly small, close and stable group - in which case a 'domestic' CIC share issue might do the job - or whether its a wider community.

There are though other issues with the IPS structure - most importantly I do not believe they can be used for this kind of purely 'equity participation' role - they have to actually carry on a trade or business.  I'm going to mention this question to Ian Snaith - the top man on IPS law - who hopefully will be able to clarify the technical legal issues raised.

The £20,000 limit to IPS shareholdings is soon to be lifted for permanent equity - but crucially will still apply to withdrawable shares - which are in fact those most generally used, and especially in community share issues.

Just to mention John's other points:

Yes you can offer different types of share in an IPS, but you cannot change the 'one member one vote' principle, so what can be achieved with different classes of shares is much more limited than in companies.

IPS shares are 'par' shares like CIC shares so cannot be redeemed at a profit, and are normally more restricted than CIC shares so cannot be transferred for profit either.

But another crucial issue is the form of IPS - co-op or community benefit?  The latter - the 'ben com' form of society mentioned by John - cannot pay dividends (only limited interest) - and no IPS can pay dividends purely on investment - it has to in relation to 'participation'.

If it's mainly a question of participation in governance a simple option would be to use a membership guarantee company (maybe a CIC itself) that is a member of the Share CIC - it can always use its membership fees or a loan stock issue to purchase shares in the main CIC too.

Hello Alice, I thought I would respond to your query on here.  I work as a legal officer at Co-operatives UK which the national trade association for co-operatives in the UK that aims to promote, develop and unite co-operatives.  Co-operatives UK’s website is www.uk.coop.

I am glad that you are considering setting up a member based organisation in order to offer affordable space for co-working to provide organisations with opportunities to come together, share ideas and support each other to progress.

Like others who have already responded to your query, I am not sure why the decision was taken to set up 2 organisations as either a CIC and an IPS (Industrial and Provident Society) would enable you to achieve your aims.  I don’t intend to set out the pros and cons of establishing a CIC on here as it seems that you are already aware of some of the benefits of operating as a CIC and I am sure that there are other contributors that could provide this information.  Also more information on CICs and other legal forms available to community and voluntary organisations can be accessed by downloading Co-operatives UK’s publication Simply Legal – link below:

http://www.uk.coop/simplylegal

Instead, I think it is important to outline the IPS structure as an alternative to the company structure.

Industrial and Provident Societies are corporate bodies registered under the IPS Acts 1965-2002.  To qualify for registration and organisation must choose to register as a bona fide co-operative or a society for the benefit of the community.  In order to register as a bona fide co-operative, an organisation ‘must be carrying on an industry, business or trade, whether retail or wholesale’ and present rules for registration with the FSA that demonstrate that the organisation will operate in accordance with the co-operative values and principles and that it intends to operate primarily for the benefit of its members – see link below.

http://www.ica.coop/coop/principles.html

In order to register as a society for the benefit of the community, an organisation ‘must be carrying on an industry, business or trade, whether retail or wholesale’  and present rules for registration with the FSA that demonstrate that that organisation will primarily operate for a much wider remit than its members.

Registration as an IPS must be carried out through a sponsoring body and Co-operatives UK holds sets of model rules for registration as a bona fide co-op or as a society for the benefit of the community.

If you are looking to include members in your organisation and it is to be run primarily for their benefit then a bona fide co-operative society should be considered.  Under this structure, members are the owners of the society, can hold multiple shares in the society, but regardless of the number of shares each member holds, each member only has one vote at general meetings of the co-operative.  There are examples of organisations carrying out similar activities to your organisations including OpenSpace in Manchester web address below:

http://www.openspace.coop/

 

If the organisation is primarily set up for a much wider remit (ie to provide space for people who do not necessarily have to be members to benefit) then a society for the benefit of the community structure should be considered.

Whether a bona fide co-op or a society for the benefit of the community structure is chosen, both may have rules that enable to organisation to raise finance by issuing withdrawable share capital.

Under IPS legislation , it is possible to raise finance through carrying out a share issue as IPSs have a unique feature called “withdrawable share capital” that enables members of the society to purchase additional shares in the society up to a £20,000 statutory limit per each individual member.  Provided that the share issue is carried out correctly, such shares issues are not subject to the same rules and regulations that companies have to abide by when issuing shares.   As Adrian suggests lots of information can be found on raising finance using IPS legislation can be found at www.communityshares.org.uk.

Just to clarify some of the points other contributors have made.

Adrian it is possible to add a statutory asset lock to the society for the benefit of the community structure which prevents assets from being distributed amongst the members or to another non-asset locked body on dissolution of the society. Such a statutory asset lock is not available to organisations registered as a bona fide co-operative.  However, it is possible for co-ops to include a common ownership dissolution provision in its structure which provides similar protection – but because it is not a statutory asset lock – such a provision can be removed (albeit only if 75% of members agree) by the members.

Also, societies for the benefit of the community do not have “de facto” charitable status.  Organisations registered as a society for the benefit of the community that has a charitable structure and charitable objects may currently register as an exempt charity with HMRC – but this is set to change as a result of the Charities Act 2006.

John according to ‘The Community Benefit Societies (Restriction on Use of Assets Regulations) 2006’ if a society for the benefit of the community chooses to include a statutory asset lock it may only transfer its assets one or more of the following—

(i)a prescribed community benefit society whose assets have been made subject to a restriction on use and which will apply that restriction to any assets so transferred;

(ii)a registered housing association which has a restriction on the use of its assets which is equivalent to a restriction on use and which will apply that restriction to any assets so transferred;

(iii)a charity (including a community benefit society that is a charity); or

(iv)a body, established in England and Wales, Scotland or a State other than the United Kingdom, that is equivalent to any of those persons.

So not just a CIC!

I’d also like to pick up on some of Geoff’s points.  Yes, IPSs do have to carry on an ‘Industry, business or trade.’  For updates on changes to IPS law see Co-operatives UK’s March 2011 update on www.uk.coop at http://www.uk.coop/resources/documents/updating-industrial-and-prov...

Geoff it is not technically correct to say that all IPSs must adopt the one member one vote principle.  This is a co-operative principle that must be found in the structure of a “primary” bona fide co-operative.  Secondary co-ops (ie co-ops of co-ops) can operate a system of weighted voting.

It is true to say that organisations set up a society for the benefit of the community can (if the rules permit) issue shares to its individual members up to the £20,000 and the Board of the society can pay interest on these shares – provided that the level of interest paid is such in order to retain the capital required to further the interests of the society.

Rather than set out the intricacies of “withdrawable share capital” here I would suggest that those interested in raising finance in this way should read the factsheet on shares and bonds available at: http://www.communityshares.org.uk/documents/factsheet-3-shares-and-...  as a starting point and take appropriate financial advice before embarking on share issue.

I suppose the questions for Alice are:

(a)    What level of involvement do they wish members to have?

(b)   Is it primarily for the benefit of the members – (ie) members own and run the organisation and can receive a dividend via their relationship with the organisation.  For example, members may get a reduced rent on the space.  Or is it that member input in running the organisation is important, but only in the context that it assists the organisation to fulfil a much wider community purpose;

(c)    How is the organisation going to be financed?  Grants, loans, share capital?  What will be the main source of income?

(d)   Is a statutory asset lock needed, preferred, compulsory?  Is it enough to have a provision in the rules that shows an intention that assets will be locked but that members may be able to change it?

I hope that the comments are useful Alice?


Awesome Denise, thanks for that, I thought the point about only being able to transfer from a community benefit society to a CIC was wrong, I though it was dodgy but that is what is said on BusinessLink website!

 

Have the model rules for incorporating a CIC Co-operative been removed from the Co-ops UK website? I cant seem to find them.

John
Co-operatives UK made a policy decision round about the time the companies act 2006 was being implemented. Until a decision is made to re-up load them they remain offline. However any organisation wantin to set up a co-op should contact legal@uk.coop or telephone 0161 246 2900.
Regarding business link perhaps u could put a cooment on their site re-directing them to my post?

I will indeed, crazy that it falls on me to correct them!

What was the policy decision? Im pretty sure they were on there in 09 and possibly later?

Thanks

John

John

It was a policy decision to remove all our models - not just the cic models -  from our website whilst the models were updated and the website was revamped.  If the members of the CIC association provide some reasons as to why the models should be uploaded then I am happy to feed back.

the main reason for me is to try and raise awareness of the fact you can be a CIC Co-operative, im a little suprised that more havent been incorporated to date, I think one of the reasons may be there isnt enough awareness of it.

 

The general levels of understanding around CICs are pretty low full stop, the more resources we have online and available the better.

 

I wonder if its not just a lack of awareness but also that the first draft of the CIC legislation wasn't necessarily that friendly in accomodating co-op values... (something which has now been changed)

 

see http://thirdsectorexpert.blogspot.com/2009/04/shortly-after-communi... (for all the relevant links to this thinking on my part)

maybe also that there hasnt been anything coming out of the Co-operative movement about it, personally im a little stumped about that, thought it would be really popular in many circumstances.

 

Your pretty well connected in the Co-op movement generally Adrian, what's the general opinion on CIC, a threat? a brother in arms?

hi John (sorry for delay in getting back to you on this) - my experince to date of co-ops looking at the different options when it comes to incorporation is that they tend to want to keep things as simple as possible so would rather deal with one regulator rather than 2...

 

there are a few co-op CICs out there, and of the ones that I've been able to quiz over their reasoning why they chose a CIC form, scarily most weren't sure - it was simply what a local "specialist" business advisor recommended that them without explanation or suggeting alternatives... for the few that did have a reason, it was because they wanted a regulator as powerful at the CIC regulator is (in theory) to safeguard their vision against a future membership going 'rogue'...

but given the general lack of appreciation and understanding about co-ops amongst all regulators (with the exception of the FSA - although I'm open to being proven wrong by the CIC regulators office on this one if they want to pick this up) this may not hold out should such an eventiality come to pass;

 

I think that most co-ops also struggle enough in presenting their identify to banks, etc because of the lack of appreciation amongst many lenders, etc about the co-op business model, without having to also content with the lack of awareness about CICs

 

of course - that's all just speculative and based on my experinces...

RSS

From Funding Central

© 2014   Created by John Mulkerrin.   Powered by

Badges  |  Report an Issue  |  Terms of Service