CIC Association

Serving Community Enterprise

I've recently been talking to Robert Ashton about involving a local or supportive community by enabling them to become shareholders, which raised again the issue that the normal company restrictions on private share companies issuing shares to the public apply to CICs, and in general this means that for community share issues the IPS form probably remains the better option - which is unfortunate since in other ways the IPSs are more cumbersome than CICs.
I'm interested in whether there is agreement that the restrictions on private companies issuing shares ought to be relaxed in relation to CIC shares - and if this should be a focus for our next lobbying effort!

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Replies to This Discussion

You always have the CIC plc option which would permit public share offers and the likelihood that the sum sought would fall below the deminimus levels for the full prospectus rules to bit. The IPS would still be an easier option. Perhaps it is correct to say that the CIC is more cumbersome than the IPS in this respect? However this does highlight that each of the legal structure options available retain their relative advantages as well as disadvantages.
For completeness, and just to kick start another debate, let us not rule out the possibility of an IPS converting to CIC status.
Chris - are you thinking of establishing an IPS to do a simple community share issue, then converting this into a Share CIC later to gain the advantages of cheaper and easier ongoing administration, more potential for capital growth, etc? I can see the advantages of this in some situations, eg. a community buy-out of a village shop or pub.
Having been through the IPS to Share CIC conversion process however I can say that although the legal process is straightforward, the unfamiliarity of both structures will I think continue to present problems for third parties to conversions for some time to come. One organisation's bank (one very active in social enterprise) found it hard to accept that the organisation's legal personality was continuous even though the name, number, etc changed - and even the CIC Regulator would not confirm this in writing without herself taking legal advice!
Hi Geof - Conversions have been with us for a great many years. It is inevitable, though regrettable, that banks and others have difficulty with the unfamiliar. From my perspective, conversion is simply another option which you can factor in as part of considering which structure best suits any particular project, including the level of hassle you will have with banks and others. Mind you if banks had their way we would all be companies limited by share, although to be fair they can occasionally recognise a guarantee company. There is a need to recognise that as an organisation/project develops the structure will need to develop with it. This is simple good governance. In my experience conversion is not even on the radar unless you are talking to those who really know their stuff.

There is a separate issue which is already open for debate; in terms of what is the function of the CIC. Is it intended to be fit for all? That seems to be where this and other debates are heading. When the CIC was being first mooted that there were clear statements that it was not intended to replace other models. Many either do not realise or perhaps have been temporarily blinded by the sparkling new CIC toy that the IPS model does have strengths and that there is still life in the old dog yet. The exemptions which exist for share offers by an IPS flow through to EU Directive level so extending these to the CIC is likely to be a lengthy process, not that that should deter anyone.

Have you considered the possibility of the UK LLP model registering as a CIC?

In this approach, there are no shares in the conventional sense, but it offers the possibility of shared asset investment by a community who in return take as share in productive assets, or the monetary equivalent.

Assets may be both financial, property or labour (sweat equity) based. so that for example the LLP might include a landlord partner, management partner and investor partners.

I'm told that in one instance it's been used by a Scottish charity to construct a windmill in Pakistan for the benefit of those contributing local sweat equity and the charity waiving its investment return.

The idea of financing a social endeavour without depending on credit, should today be very appealing.

The LLP structure does offer some great - and under-used - possibilities for social enterprise, especially for collaboration between organisations, where they can replace usually adversarial contracts, such as landlord-tennant relationships, with collaborative and mutually beneficial arrangements. LLP 'shares' can also offer greater flexibility - for example they are infinitely divisible! Open source software development projects have developed sophisticated algorithms to recalculate and redistribute the 'ownership' of the project LLP among a community of developers on a daily basis. Simply not possible with company shares!
However, LLPs are very different from CICs and the two can't be brought together except in a consortium or group of separate structures. The biggest issue is that although you can write a partnership agreement so that it is 'not for profit' (as you can an ordinary company constitution) - LLPs are not externally regulated 'not-for-profit' structures, so they lack the absolutely key distinguishing feature of CICs.
Understood Geof, but what I meant was, as company limited by shares or guarantee becomes a CIC through a community interest declaration and through regulation, why couldn't the LLP be regulated in the same way?

Since it came into being 4 years before formal CICs, couldn't there have been some joined up thinking on the part of those drafting regulations, to be inclusive of all forms of business?

Chris Cook who is a leading advocate for LLP social applications of peer to peer social initiatives describes the concept in detail.
Hi Geof

This is definitely an area of focus, although I think the conversation so far proves we've got a fair bit of debate to go. It has been mentioned that we should get involved in the central community shares issues currently underway, and we'll so do shortly. Its also been suggested that we gather all the banks etc together to have a central discussion on the effect of the changes, would you guys feed into that? Even with the best will in the world I'm not sure we'll be able to get the restrictions relaxed until the next formal review in 2/3 years, but we should develop some sort of uniform approach.

I'd like to make sure we find a path thru this for CICs, in many ways it looks sensible for the Association to form an IPS which is recognised as a charity by the HMRC to allow us to develop Bonds which lend to CICs, could the same central legal structure be used to improve share investment/ overcome the restrictions in any way?

Centrally: Should we offer an overnight share dealing service? provide template prospectus? pool and prequalify potential investors? provide investment readiness resources to CICs? Most of these could be gathered under a seed funding request to Big Lottery etc, and there should be some attractive income streams to ensure sustainability if done successfully.
I'm sure you're right John that the way for the CIC Association to approach these issues is through a seed-funded project to look at the whole spectrum of CIC share investment issues:
- building an evidence base on the behaviour of share and other investments in CICs
- guidance on when and how a private share CIC can undertake a domestic share issue - including model documents
- similarly, if, when and how PLCIC status should be sought
- building an evidence base for further regulatory changes such as easing community share issues as I proposed
- awareness raising publcations and events - both for banks etc as you suggest and also for CICs themselves
- research and development of central services, such as brokering investment and CIC share sales and purchases, and again as you suggest an IPS or a PLCIC to raise invesment, explore CITR status, and invest appropriately in CICs.
When are you next down in London Geof? Would be great to talk, ive met with the Regulator and am just waiting to confirm a date to meet with BIS/OTS. As Chris says there is a little ambiguety as to the function of CIC so we really do need a clear understanding of how we integrate into the existing landscape.

Ive also had contact with Jim Brown whos lead consultant on Community Shares, so at least we've started some of the dialogue.
Chaps - just reading this thread. I'm thinking of registering a CIC for a particular project - which is essentially property based. I am wondering whether it would be helpful to set up an LLP which would then effectively be the principal shareholder of the CIC.

In doing this the equity within the LLP could be changed - with relative ease - and indeed could be offered as an incentive to get involved (financially or otherwise with the project) - the CIC could then proceed as planned and approved and would repay the equity/finance via the LLP.

Any views?
You might take a lookat Chris Cook's work on the LLP Atam, he calls it Open Capital. There's an example of application to property development:he describes as a Community Land Partnership.

In his presentation, Chris describes how he saw the possibilities in a development by the Hilton Group.
Jeff thanks for this - it really does make interesting reading. Chris is taking a slightly different line as he is using the LLP model instead of CIC - as the Members of the LLP can be both owners and beneficiaries of the LLP (in some ways not too dissimilar to a co-housing project).

Will be looking into this further.



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