CIC Association

Serving Community Enterprise

Update June 2013

Good news everyone, Govt have included CIC Caps as part of the consultation on social investment tax relief (page 18 and 19 are the CIC Cap questions)

Well done on helping raise the level of awareness and debate, ill probably arrange an event, for us all to get together.

Would everyone be happy with Manchester?

Update 12th Feb 2013

Hi all, please find attached below our report to The Regulator, based on the findings from our CIC Dividend Cap review.

Thanks you for helping us organise organise the wisdom of the crowd, I would appreciate any feedback positive or critical to ensure the ongoing debate is exactly where you want it to be.


Update Nov 21st 2012

Hi All

Dividend Cap review survey can be accessed here:

Event in London 14th Dec to discuss the review and network with fellow CICs:

Hi All


In advance of the review of the caps later this year year, we are actively seeking comments and suggestions to ensure as wide and deep a feedback as possible. A number of activities including a technical panel are ongoing ,  with more evidence of investments and a better understanding of the issues emerging daily.


There are a multiple of opinions on this subject, please make sure you give yours if you havent already.  Any practical effects of any change will not come to pass until summer 2014 at the earliest, I believe we need to achieve recommendation 1 at the very least, and based on anecdotal evidence only we favour recommendation 3 over 2.


No1 recommendation 1 - To allow the dividend cap to be set against any subsequent transfer/sale price of the CIC Share, currently it is pegged permanently to the initial paid up value of the Share.


This is a recommendation that I believe can attract almost complete agreement, as it improves the potential of CIC Shares without calling into question the current balance of community primacy. It is not a neutral suggestion, it definitely takes into account CIC members views that dont want the generic balance of community primacy/investor reward changed. 


It improves liquidity and allows for development and innovation. It will open up investment into CICs from a wider group of investors.


It is an unintended consequence. It fails the basic notion of what a share is on a technical level. It unnecessarily prejudices against an investor who may want to invest in CIC Shares. Eg. An investor can get a maximum potential 20% return on the issue of a new share in the same CIC, so why not on the transfer of an old one? 


The difficulties generally around small company shares being hard to trade, coupled with the dividend caps themselves will still make for a difficult environment.


No2 Alternate recommendation - To remove the individual caps altogether and just use the aggregate cap of 35% of distributable profit.


This could be a far simpler system to monitor and evaluate, to report and to scrutinise on, and it would undoubtedly open up the potential opportunity to attract more inward capital investment.


It would open up CIC to almost all types of investor.


It does however raise objections from many CICs who feel this is a fundamental change to that relationship between community primacy and investment reward. On balance and based only on anecdotal evidence within the Association we feel 35% distributable would be too much.


No3 Alternate Recommendation - To remove the individual caps altogether and just use an aggregate cap of 20% (or 25%) of distributable profit


If we take into account the reality of developing CIC Shares, developing the Regulatory procedures that are in place will be important, to cut down on bureaucracy and running costs. This would allow for effective slimline Regulatory control and wouldnt change the primacy of community benefit/ investor reward. 


Reducing to 25% instead of 20% would keep more investment options to CIC.


The Regulator would then have one simple control (that it could increase or decrease subject to further review), and in the medium term this (we suggest) could be the best strategy to adopt.


Both alternate recommendations 1 and 2 would supersede the need for recommendation 1




Views: 1755


Replies to This Discussion

Hey Jeff

Id be gutted if we didnt have a bit of challenge!, for me its the best form of debate and learning. 

what, if any, of the changes would you make Jeff? what do you think of option 1? 

I agree with much in your attachments, Mr Hallmans ideas aren't a million miles away from my own :-)

John,  I'm having some difficulty even understanding option 1.  Can this be helpful if this is intended to attract investors?

Where we differ perhaps is the base point of an alternative to traditional capitalism.  Our study guide for Economics in Transition explains how the current crisis developed from an unregulated stock market and OTC derivatives.  The presentation argues that we are now trying to fix a broken economic system by imagining another 3 trillion dollars and lending it to ourselves.    

In our 2004 business plan we describe how a business for the benefit of the community will render profit to community development finance institutions, an approach proven by a microfinance initiative in Russia.

The essence of this approach to community primacy is that funds are created by and for the benefit of a local community, a continuous process of investment needing only a small amount of seed funding to kick start the process.

A very interesting approach to creating that investment from the community id offered by the Capital Partnership model advocated by Chris Cook.  It is based on an LLP legal form and as you know there is now a CICs model based on the LLP.   

In his presentations, Chris explains how any group of people may now invest cooperatively without approaching  banks or the stock market and share in a productive asset, including the investment of sweat equity.       

This asset rather than debt based approach to finance is something I see as congruent with the post growth, people-centered local economy

Hi Jeff

Eg: Example CIC is launched with 100 x £1 shares by Miss X. This means the share can offer a maximum dividend of 20p for every share under the current rules.  

If Miss X sold those shares to Miss Y for £2, they would still generate a dividend of 20p, which in this case would be only 10% of what Miss Y paid for it.

However, if Miss Y had NEW shares issued, as opposed to buying existing ones, she would be able to receive a maximum dividend of 40p per share.

Why would Miss Y want second hand shares, they are intrinsically worth less than new shares. 

Option 1 proposes that we allow the dividend to be set against transaction price of the share, thereby making the second hand values of the share equal to the first . It does not seek to make any changes to the level of the caps, which options 2 and 3 deal with.

Get it?

What I don't get is how BBW who 'led a number of groundbreaking legal reforms including the creation of the community interest company' could have purposely created the above scenario.

Because they're lawyers, not economic activists nor practitioners. Richard. 

Why not ask them?

Id suggest it was a much wider stakeholder group that 'created the above scenario', in effect (although they are a key voice and add their opinion to the debate) BWB would have exercised their clients wishes. When you take an overall view on the legislation you have to say that is has been introduced very successfully.

Friction between Blair and Brown, competing Civil Society ideologies, resistance from centrists and existing vested interests had far more to do with it IMHO. Maybe a little fudge in the mix that you are not accounting for Richard!

More important to focus on the here and now, this is why Option 1 is specifically held apart for correction of an issue, it is unfair in the strongest sense of the term. 2 and 3 offer options to the Regulator to increase/change the investor reward and/or make the regulation simpler to manage and describe. 

Here's a couple for you Richard,

what is the extra amount of investment gained by going to 49%  A) Over above what could be expected by a flat rate of 20% and B) over and above what could be expected by a flat rate of 35%

What would be the loss in access to grant funding by going to 49%, again in context to A) and B) above? (CIC Share companies currently get £millions in grants)

Thanks John. That does make sense and is pretty obvious when you think about it! The shares are the shareholders asset not the CIC's. Interesting that it doesn't seem to be talked about much.

more than interesting Gareth, opportunity being missed!

Hey Richard, just checked, I sent you that BCC report Apr 07th! Attached here again, it is a riduluous figure when you think about it 


Who was the client that paid for BBW? In fact how much did it (does it) cost to create a new regulated legal form?!

If founders & investors can get paid in dividends up to 49% of profit (a higher return than the current 35%) then surely more will choose the CIC structure over a regular ltd by share company?

Why would there be any knock on effect relating to grant funding? Any assets are locked in and most funders ask for recipients to provide receipt of all expenditure, i.e. you can't make profit from grants.

If founders & investors can get paid in dividends up to 49% of profit (a higher return than the current 35%) then surely more will choose the CIC structure over a regular ltd by share company?

If that is true why has there been little or no evidence that social enterprise (who can offer what they want in effect) are succeeding with this type of proposition? Most of the evidence points to the return not being the issue, attached one report from Nesta

I think there wont be another chance to effect this for a few years so you should think about gathering evidence to submit to the regulator to support this, Daniel at Resonance sits on the Technical Panel so he may want to support this suggestion.




Hi Richard

The attached report should encourage you Richard-

'Any such review would be likely to involve a relaxation of the dividend cap for CICs limited by shares to allow a higher percentage of distributable profits to be distributed and to allow a percentage of surplus capital (excluding any assets granted to a CIC) to be distributed to shareholders on a winding-up.

We would suggest a cap of 40% of distributable profits and 40% of surplus capital on winding-up, to make the form more attractive to social investors whilst retaining a clear social focus. It would also be likely to involve a move away from solely linking the distribution caps to the initial par value of shares to an alternative cap which either removes reference to the initial par value of shares or which permits a substitute reference to the fair value of shares, certified by an accountant. Any relaxation in the dividend caps could be matched with stronger governance requirements, such as a quorum of independent directors and some form of social reporting.

Any reforms introduced should be engineered to be capable of being compatible with modest tax breaks for CICs, which should be designed in part to encourage more CICs to be established.'


Hi John, my point was about investment and investors generally as social investment is certainly not the only game in town for social ventures.

Who else is on the technical panel, how does one get on, what is involved etc? I will chat to Daniel about this and let you know any outcome.

The BWB report is excellent in its assessment of the problems the growing social investment market faces and in offering solutions. It's also pretty damning of the legal form it set up and covers my main concerns:

The CIC is more restrictive than it needs to be and is not an ideal legal form for social investment. The cap on dividends, for example, operates in relation to the initial par value of shares and does not properly account for the potential of the company to grow significantly in value. A budding social entrepreneur might reasonably expect upside from the personal investment of sweat equity and will often baulk upon hearing that, in the case of a CIC, an increase in the capital value of the business will be captured by the CIC asset lock for a social purpose. Similarly, social investors looking to invest for financial and social returns might find it hard to generate returns in the present UK social economy, as the CIC form limits equity upside. Without reform, there is a risk that the UK will fall behind other jurisdictions, such as the US, which is developing a range of hybrid legal forms, including flexible purpose corporations, benefit corporations and low profit limited liability partnerships, to harness capitalism for social impact. Each of these legal forms facilitates the pursuit of wider social benefits alongside investor value and none of these legal forms have asset locks or express limits on dividend distributions.

I liked the final paragraph in that section about creating a range of social purpose forms:

Any such pro-social companies would not be classed as social enterprises according to the standard definitions applied by Government, Social Enterprise UK or the Social Enterprise Mark.

Same situation today where CICs are not classed as social enterprises by default by the Mark!

I would certainly back their 40% of distributable profit and 40% of surplus capital on windup proposal.



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