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Problems with being a CIC limited by shares,compared to being limited by guarantee - Help!

I am the NED for a small CIC which is Limited by Shares, when it was created a few years ago, but we are finding that this excludes us from a number of Grant Awarding Opportunities which is very frustrating.

I know that we can't switch the CIC from one limited to one limited by guarantee, without actually winding up the existing structure and restarting, with all the costs, legal and logistical hassles that this would involve.

However, I would like to know if anyone has ever tried (or succeeded) in making changes to their CIC Articles & Memoranda, which makes it explicit that the share limited CIC will not make any distribution of profits, and that any/all profit to be explicitly reinvested in the company.

If we could do this, theoretically there is no reason why to all practical intents and purposes we wouldn't be acting just as a CIC limited by guarantee and therefore be able to make this clear to grant awarding bodies.

Has anyone ever done this? if they have, has it worked?  I would welcome any observations and experiences of members, especially from the legal perspective. It seems that whichever structure you use, it excludes the CIV from certain areas of activity.

Are there any legal experts in this area member might know. 

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Comment by Mark Hadley on November 1, 2018 at 17:39

Hi John,

Thanks for getting back to me, sorry it took me a few days to pick up your response.  I'm not sure tbh about which  Share Schedule we are, but I'll find out, and follow up if this all looks like we can do something along these lines.

Many thanks

Mark

Comment by John Mulkerrin on October 29, 2018 at 16:03

Hello Mark

The first thing to mention is do you know whether you are schedule 2 or schedule 3 CIC Limited by Shares?

A schedule 2 Share CIC can only distribute dividends to other asset locked bodies (Charities,CICs) and there is no cap on the amount they can distribute.

A schedule 3 Share CIC has the above but in addition can distribute dividends to non asset locked bodies (individuals, other corporate structures such as a Ltd company).............and these distributions are capped at 35% of distributable profit.

So in effect, if you are a Schedule 2 CIC I think you have a very strong case to describe yourself as a not for profit. Can I ask what funds you dont have access to that a Limited by Guarantee does have? For example Big Lottery Awards for all used to only fund Limited by Guarantee, but changed policy to allow Limited by Share CIC as long as they clealry ring fenced the money. We are always keen to help funders understand the different structures so let me know, we have had some good responses from many funders who are happy to update and/or review their eligibility criteria.

If you're a Schedule 3 you can pass a resolution at your board meeting to adopt Schedule 2 Articles of Association and send relevant paperwork to the CIC Regulator to change over.

If you did decide to shut one down and start a new one up, its a little tricky but you could give the new organisation permissions to use the name/branding of the existing CIC, and once it is dissolved you can then simultaneously process a name change to the new structure giving it the old name. Messy, but not hugely difficult.

Not for Profit is a key term and all Schedule 2s are clearly Not for Profit in our view. Taking a wider view to give the issue some context, in over 13 years there has been only a handful of dividend distributions made and only perhaps 5-10 million of equity investment in total!

The real issue is there isnt much equity investment or infrastructure at all, its 99% loans, grants and founder investment.

Hope that helps, best of luck

John

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