Firstly, I'm so grateful this resource exists! Our local VDA (where I'd have previously been able to get this info) has just closed down.
To the point: I'm full of questions as we seek to convert our small business (still officially a partnership) into a CIC. It's a board-game themed tea room. Our background is in community and youth work and we want to become a CIC (not-for-profit) to be able to realise our potential in the local community (gaming is amazing at bringing people together - and currently popular!)
The question I have is: upon conversion, how do we protect the capital we've invested. Including start up costs and unpaid time the business 'owes' us a significant amount. We do not intend on making a profit from this investment, and we would only seek to reclaim it if the business was in a good position, and we wouldn't charge interest either. Do we draw up a contract with the directors of the new CIC (which happens to be us)?
What we don't want to happen is for the business to do well, we feel we can take out our initial investment, but for this to look like we're taking a share of the profit to HMRC.
Thank you :)
The general rule is that the practice of protecting the capital you've already invested is the same as that in a normal LTD company. A contract as you've mentioned would work, perhaps get an accountant to help ensure it is arranged efficiently. Obviously that agreement could rfeflect debt or equity elements, start up costs etc and the cost of your time too. All as per normal LTD and subject to the same tax regulations etc.
Just to make a point for clarification, CIC Shares and their inherent value do NOT form part of the asset lock. IE A CIC might start with 100 x £1 share . The owner of those shares sells them for £1000 each. That money belongs to the entrepreneur not the CIC.
I hope you do eventually make a profit, and a good one at that.
Best of luck