Firstly please excuse my naivety. I am a member of a voluntary organisation which is involved in community-led renewable energy and energy reduction schemes.
We are in the process of reviewing our status and want to incorporate into an appropriate company format. A Community Interest Company is one possibility.
We want to form a social enterprise where we raise capital by a share issue within the local community to fund a community-owned wind turbine project. Share ownership will hopefully be led by several hundred local investors and we will look to raise in the order of £750K.
Our aim is to generate a revenue stream from which we can
a) Pay local investors a reasonable dividend
b) fund other local community energy projects, both generation and reduction
We do not have funds at this stage to engage a company lawyer to investigate options for us, but are currently searching for such funding. In the meantime we would welcome the CIC association's comments on the likelihood of the Community Interest Company being the right structure for us to use. The other alternative we are looking at is an Industrial Provident Society.
Within our organisation we have some experience of the IPS structure but believe that the limitations (for example £20k investment limit) get in the way of making this the best option for us, but we are also aware of some limitations with the CIC model (for example is it true that if you have more than 100 investors you have to become a PLC?).
Please can the group give us some clear advice about what is the best social enterprise model to adopt?
IPS structures are normally used in your situation Steve.
Although they do, as you say, suffer the £20k investment limit - and other disadvantages - these are normally less of a problem for community share issues than the kind of problems presented by the stricter regulation that afflicts company shares.
One of these you allude to is the need to form a plc - or plcic (public limited community interest company) - for public share issues. The '100 investors' is a rule of thumb rather than hard regulation - but a community share issue with probably hundreds of investors is likely to be regarded as a 'public' rather than a 'domestic' issue, and would therefore require a plc structure.
Unfortunately, we still lack a really good structure for community share issues.
I assume you know abut Energy4All, by the way?
Thanks Geof. We were leaning towards an IPS structure. Can you give me a brief overview of the other problems associated with share issues and the CIC format?
I had also heard that there is a financial services review pending. Does anyone know about this and what impact it is likely to have on social enterprise structures? Is there any likelihood of changes in IPS or CIC regulations?
And yes, we have looked at Energy4All. We want to remain independent however so probably won't involve them in our future work.
I haven't heard of a comprehensive financial services review, although I do know work is underway on both IPS and CIC shares.
The Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2010 is I believe still likely to find its way into law late this year or sometime next, and this will I think allow IPSs to breach the £20,000 limit for transferable shares (ie. shares like company shares) but not for redeemable shares (ie. thise normally used for community share issues).
It will also make IPSs a bit more user-friendly - but in my view it still won't make them anything like as easy or cheap or efficient as company structures.
A fundamental issue here is that CICs have a really efficient and friendly Regulator and IPSs have - well, they have the FSA!
CIC shares though have at present no special exemptions in terms of how they are issued - although again I know folks including our own John Mulkerrin are talking to the Regulator about this.
At present all the normal Company Law and FSA regulations apply to CIC share issues, which basically means that:
As I said, at the moment you have a bit of a choice between evils:
Here's a link that leads into the FSA reforms, http://www.socialenterpriselive.com/section/news/money/20110623/app...
as you'll see it involves the expansion of the IPS exemption to other legal forms (which we love) as well as a call for a social investment regulator (which we would need a lot more information about before endorsing but look forward to more information on)
Point 3 suggests all individuals within a CIC can be reasonably regarded as sophisticated investors, would welcome any comments. What about volunteers?
The information contained in this post does not constitute legal advice and is intended as general guidance only.
"Financial Promotion" is the term adopted by the Financial Services and Markets Act 2000 ("FSMA") for all forms of advertising of regulated products or services in the United Kingdom. It subsumes the old concepts of "investment advertisements" and "cold calling" under the Financial Services Act 1986 but promptly resurrects them by differentiating between "non-real time" and "real time" communications respectively,which are controlled in different ways.
– All inducements and invitations to buy shares or other investments are potentially regulated
Under Article 50, in relation to sophisticated investors, the financial promotion restriction does not apply to any communication which:
-is made to an individual whom the person making the communication believes on reasonable grounds to be a self-certified sophisticated investor;
-relates only to one or more specified investments
In both cases the communication must be accompanied by the giving of a warning that it is exempt.
To be considered a sophisticated investor at least one of the following must apply:
1. The individual is a member of a network or syndicate of business angels and has been so for at least the last six months prior to the date of the certificate;
2. The individual has made more than one investment in an unlisted company in the two years prior to the date of the certificate;
3. The individual is working, or has worked in the two years prior to the date of the certificate, in a small or medium enterprise.
4. The individual is currently, or has been in the two years prior to the date below, a director of a company with an annual turnover of at least £1 million