CIC Association

Serving Community Enterprise

Hi all

I'm in the process of setting up SustNI, a CIC whose mission is to  work towards the building of low carbon, sustainable communities in Northern Ireland. I'm a practising Architect and want to create a collaborative organisation (alongside my Architectural Practice) comprising of Architects, Planners, and Renewable Energy Consultants which will work with communities, local authorities and wider stakeholders to prepare area based sustainability and energy plans.

The intention is to run SustNI as both a consultancy and research organisation, with income derived from projects and from grant funding bodies. Any profits from the trading part would contribute towards community projects, training and maintaining the info hub on the website.

At present there are several partner organisations interested in providing the planning and renewable energy components of the collaboration. In the short term my thinking is that directors of these organisations could become non-executive directors in SustNI, with SustNI drawing on their respective areas of expertise as sub-consultants.

In the short term I want to get constituted with my wife and I as the two board members, with myself as chair and sole director. Can I do this and then expand the board of directors over time while retaining ownership?

While I am minded to proceed down the 'guarantee' route, to optimise the potential for grant funding (particularly in the short term to help get established) I just want to avoid tying myself into a structure which seems less flexible than the shares route.

For example-

1. What if the non-exec directors wanted an equity share in the organisation - how might this work?

2. What if in 5 years the organisaton was established and didn't need me at the helm - is there any way of getting any financial benefit from the 'sweat equity' of building it?

That's probable enough to start a conversation but I'd be extremely grateful for any advice/insights anyone could offer. The 'under construction' website can be viewed at following address which gives more info on what I'm aiming at.

http://www.wix.com/robkjennings/sustainablecommunitiestest

Many thanks

Rob

Views: 269

Replies to This Discussion

Hi Rob

1. However you want it to basically, you could for eg have all the partner organisations have equal share of the equity. You can arrange voting rights etc as you would with a traditional share company.

2. One thing to consider here would be more readily described as an 'executive activity sweat return'. IE if you are giving your time at less than market value you can have an arrangement where that 'discount' you are giving is arranged similarly to a director loan, if in 5 years you move on you could have an trigger to realise that built into an agreement, or not as the case may be. This would be relevant to either a limited by share or guarantee.  This doesnt reward success, but it does at least cover the unpaid work you do to get it off the ground. 

Again as standard you can use issue shares as happens in traditional small companies as sweat equity reward, but I'd suggest you fully understand the restrictions on CIC shares, which make them slightly less liquid than normal small company shares. Plenty of good info here: http://cicassoc.ning.com/group/cicshareissues

The investment into the company from partner organisations could also take the form of loans/director loans etc.

Re expanding the board, yes.

Obviously this information is for debate only, getting full advice from a professional is strongly recommended from someone who is aware of the the issues in detail.

As John has said, CIC Shares remain at present a relatively weak instrument to realise sweat equity, and often some sort of payroll arrangement is better - though unfortunately not tax-efficient.  Do get advice on this.

The decision between Share and Guarantee forms of CIC is particularly difficult at start-up, but is unfortunately one of the things that is relatively hard to put right subsequently (you can't directly convert between the two forms).

Part of the problem is that the grant-attractiveness of the Share form has been changing over the years - and it looks like this will continue.  In the early days most substantial grant-giving bodies were interested in the Share form.  Some, such as Esmee Fairbairn are still open to it, but many have more reservations now.  In the early days, many local authorities when it came to discretionary rate relief etc didn't even want to know if the CIC was Share or Guarantee, but here again this is changing (though I still know of Share CICs that do get rate relief).

The Share CIC form has come to be seen as more commercial and less grant-friendly - partly as a result of the activities of CICs themselves, and Regulatory changes which have moved the Share CIC form a bit away from 'not-for-profit' and towards 'social business'.

Sector specific funders, including environmental, tend to be more interested in purpose than in structure, so you may be ok with the Share form, but I have to say my general advice nowadays is that if you need grants it might be best to start with the Guarantee form and add a second Share company later if and when growth etc demands investment.

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