CIC Association

Serving Community Enterprise

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 Trotter yesterday

Wow, what a pickle.

There are solutions to the problem, the most effective is to look at whether your CIC is actually appropriately constituted. 

A CIC should not be dependent on gant funding. This is the very clear mandate of the Social Enteprise and a CIC. The issue of pecunary benefit is challenging as many social enterprises wouldn't exist without the dedication of the directors who need an income. 

So begin a review by looking at where you can create income. If your only option is grant making trusts then rethink the structure. However, if you can contract with the public sector then begin to develop the tender writing skills required. Contracts are safer than grants for a CIC. 

Additionally if there are local not for profits who can access the funds look at forming structured service partnerships with them. This is best achieved by looking at common support services used by your client group. 

There are a few solutions. Changing Mem and Arts can be more painful than starting again. I wouldn't advise on that without first reading the documents and establishing that the directors have the authority to make these alterations.   

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