"Thanks John - Indeed - I argued the case with the Lottery when they refused a Schedule 2 CIC - and they have accepted that and did change their guidance on A4A - I think most funders do know the difference and are happy with Schedule 2s - The issue…"
"Hi - Schedule 3 CICs and Funding - I work with social enterprises on legal structures and funding and assess a lot of funding applications. I frequently come across Schedule 3 CICs who (not unreasonably) think that they should fulfil funders…"
A can of worms! 'Not for Profit' is open to interpretation. Firstly, CIC Limited by Shares can be either Schedule 2 or 3, 2 allowing unlimited dividend to be paid to another asset locked (eg Charity) body only. In addition to this Schedule 3 allows a capped dividend to be paid to non asset locked bodies ,individuals and corporates etc)
My own opinion is that in the majority of real world situations Schedule 2 CICs are 'Not for Profit' and Schedule 3 are 'For Profit'.
The key subtlety of the legislation, and approach from the Regulator etc, is that both are 'not principally for private gain' so it could be argued that all are Not for Profit in that sense.
Grant funders are wary of providing grant to an org that could distribute it to investors, but for eg I believe A4A will allow schedule 3 CIC applications as long as the grant is clearly ringfenced. I would welcome an update if that is not the case.
The actual amount of dividend distributed from CICs over the whole period is negligable. If only share CICs were thriving enough to pay dividends to external supporters. It can get messy, for eg a Limited by Guarantee paying 10% interest on a loan v a Limited by Share paying 3% on dividend. Which has more useable income for the social/community benefit?
General description of not for profit for most grant funders is something like 'an organisation that cannot distribute profits to external investors'.......catching all share CICs.
Further to this there isnt a simple process for share CICs to use them to raise investment rather than grants, but we're working on a solution to that and hope to launch a service in early 2019.