I am trying to start a company that I want to set up as a CIC. My trouble is in choosing whether or not to be limited by shares or limited by guarantee.
My business is designing, building, and selling adaptive outdoor sports equipment for people with disabilities, and providing training for use of the equipment, both for customers that have purchased equipment and for schools, clubs etc where we will provide the kit. Now the key is that the kind of equipment I'm talking about currently retails for anywhere between £3500 and £10000, but we will be providing it for between £1500 and £4000, or less if I can do it.
Everything I have read so far suggests that as a sales and service based business I should be looking to be limited by shares, but my heart tells me I want to be limited by guarantee so that I can truly claim to be a not-for-profit company.
I would really appreciate any and all advice that you can offer...
Do you want to raise funds via shares?
Have a look though the discussions in our CIC Share group to get a grip with some of the issues if so :http://cicassoc.ning.com/group/cicshareissues .
If you dont have a particular strategy to gain investment through shares ( which if you do you really need to be truly up to speed with what you can/cant should/shouldnt do) then go ahead and start as a Limited by Guarantee, dont forget down the road if you wanted to you could also incorporate a Limited by Share that the Limited by guarantee can wholly or partly own.
Your heart might be right, dont forget you will also have access to far more grant funding and likely a stronger case when bidding for certain civil society contracts. The business sounds excellent whatever strategy you take , a lot of the time it boils down to which strategy to most likely make the business sustainable for the medium term and all choices will compromise something somewhere.
Okay, thanks. I had no real desire to sell shares in the company, but was just going on what I had read with regards to the type of business we will be, all of which brings me on to my next question then: if I am setting up as limited by guarantee, and I have my three or more trustees, is there a way in which I can maintain overall control of the business given that it is entirely my baby and I have done all of the work (and spent all of the money!) required to get to this stage?
Yes, you can structure it so you retain control.
i think the argument moves to should you be a CIC limited by Guarantee or a non CIC Limited by Guarantee (lets assume we've discounted CIC Limited by Share and non CIC Share for the moment)
What's the difference? You can put every single control that is in a CIC in a non CIC, so basically there isnt a difference in a structural sense. But would a local authority be more likely to give a building to a community group that didnt have an asset lock with a Regulator to oversee it?
Its only £35, simple and flexible. Its easier for others to recognise the controls you work under, the fact that there is a regulator to oversee everything gives confidence. You will be a legally recognised organisation that works for the benefit of the community (whoever or whatever that is) first and foremost.
You can also join and add to the growing collective thats building the CIC culture. Im sat in a privileged position where I get to see the see the growth and development better than most. Two years ago I would have that it was very erratic whether CIC added value, now I'm comfortable saying that it does, in your activity today. Collectively its not a gimmick, quite a lot of people havent really stopped to think about that.
But maybe the question should be why wouldnt you be a CIC? If you have a particular reason, then you have a reason. If not, id suggest the positives far outweigh the negatives.
Chris- I agree that limited by guarantee indicates that you are true social enterprise, however if you are going to need any outside investment in the future, potential investors could be put off as their potential return is limited by CIC status, but particuarly if Ltd by guarantee. Its hard to find social investors. Really think about your growth in a few years time and what you might need..... my experience of setting up an enterprise that's a commercial business is that you may not qualify for many grants or funding either, so be careful and research it well before committing.
Thanks Jo. This is the problem I'm having in making this decision, there doesn't seem to be a model that fits with what I want to do. I am even considering not bothering with CIC status and just running my business as ethically as I can. You should have seen the look on the business advisor's face when I told him I was definitely not interested in earning more than I need to pay my bills and mortgage!!! I wish there was an easy solution...
Hi Chris, - I formed a CIC with shares and encountered two major problems: a refusal by the local Council to grant discretionary rate relief, and a decision by certain grant funders (e.g., Awards For All) that we were ineligible to apply. Another difficulty I face is persuading private or other investors to invest because with 65% of any profits asset locked, only 35% of potential profits are available for distribution. So I'm now thinking about creating a CIC by guarantee for the community development side of our operation and focusing the existing CIC with shares on commercial income generation through consultancy ad training services. Note that you cannot convert a CIC with shares to a CIC by guarantee. Hope this helps you with your thinking. - Dilbagh
Thanks Dilbagh, it kind of does help, but at the same time is not what I wanted to hear!!! I clearly need to put a lot more time into this, and it's already taken me weeks to get this far...
potential investors are put off by bloody everything! In 2010/11, only 3.5 million of equity (risk) investment went into the social economy, i'll be honest I couldnt believe it was that low. Funnily enough even with CIC Share problems (and you'll see hear im pushing for change) we seem to have more than our fair share of what was a very small amount,
This summer the regulator will conduct a review of the Caps and it is vital we all add to that discussion.
Thanks John, and for your reply above.
I definitely want to be a CIC; I want to be paid for the work I do, but I am NOT in this to own a multi-million pound company. I think I am going to set up as a CIC limited by guarantee though, as the shares route seems to create more problems than it solves for me. So, how do I ensure that I retain control of my CIC whilst having the requisite trustees to enable maximum exposure to the all important funding..?
call me on 0203 262 3044, there's a gremlin