1.2.7 Community interest companies
Community interest companies (CICs) can, and do, sell shares to investors and raise capital from the communities they serve. But they must do this in a way that is completely different from societies.
CICs are a regulated form of company. As such they are fully subject to company law, plus the specific provisions of the CIC regulations. CIC legislation, introduced in 2005, provided a new regulatory framework governing the three main forms of company: a private company limited by shares, a company limited by guarantee, and a public limited company (plc).
Section 755 of the Companies Act 2006 prohibits private companies from making public share offers. This means that any company planning to make a public offer of its securities must convert to a plc before making the public offer. This includes CICs, which must become CIC plcs. Public limited companies are required to have a minimum of £50,000 in paid-up share capital and must meet more stringent auditing and public reporting standards. The Financial Promotion Order 2005 (see Section 7.3.3) requires financial promotions to be overseen by an FCA authorised person, unless the promotion is exempt from these provisions. The Order specifies a range of exemptions, including an exemption for societies, but not for CICs. Other exemptions, which may be relevant for CICs, include high net worth individuals, sophisticated investors, and the ‘common interest group’ of a company. However, professional advice should typically be sought to determine how these exemptions might apply in the circumstances of a proposed share offer by a CIC.
There are also financial and governance reasons why CICs may not be a straight forward form for community shares. Unlike societies, companies cannot issue withdrawable shares; their shares must be either transferable or redeemable, which requires a different approach to capital liquidity. On the other hand, there are no restrictions on the amount of share capital an individual may hold in a CIC. The dividend cap on CICs may allow investors a higher return on capital than can be offered on shares in societies, as it is based on a proportion of profits (currently 35%) rather than a dividend rate per share.
Although the CIC form may not be straight forward for community investment, it is still a suitable form for equity investment by social investors. It may be particularly suited to social investors who want to exercise control over their investment, because CICs work to the principle of one-share-one-vote. The private placement of CIC equity with social investors could in turn be facilitated by social investment financial intermediaries who understand the constraints of the Financial Promotion Orders and have access to sophisticated investors and high-net-worth individuals. For CICs who are seeking to attract investment, and there are a number who have done this successfully, it is recommended they look for specialist advice or networks for further guidance.
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