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Social enterprises in the EU (IVOR nr. 111) 2018/2.7.3.3
2.7.3.3 Financing of resources
mr. A. Argyrou, datum 01-02-2018
- Datum
01-02-2018
- Auteur
mr. A. Argyrou
- JCDI
JCDI:ADS589280:1
- Vakgebied(en)
Ondernemingsrecht / Rechtspersonenrecht
Voetnoten
Voetnoten
W. Spiess-Knafl and A.K. Achleitner, ‘Financing of Social Entrepreneurship’ in C.K. Volkmann, K.O. Tokarski, K. Ernst (eds), Social Entrepreneurship and Social Business: An Introduction and Discussion with Case Studies (Springer 2012) 158.
2004 Act, ss. 39-40, 26(3); Explanatory Notes to the 2004 Act, paras. 236-237; Palmer(n 76) paras. 1.225 and 2.035.
Although a CIC may qualify as having charitable purposes, it is nonetheless treated as not being established for such purposes as explained in the Explanatory Notes to s. 26(3) in 2004 Act, paras. 195-196. Therefore, CICs will not be subject to the benefits or obligations of charitable status, nor will they be subject to advantageous treatment afforded to charities, for instance tax reliefs or exemptions which are only available to charities or donations and which attract tax relief. However, it should be noted that a charity or a charitable entity might own a CIC or a CIC may be the trustee of a charitable trust, in which case the charitable trust and the CIC could pass assets, which are eligible for relief. Explanatory Notes to the 2004 Act, paras. 236-237. See OSCR, ‘Memorandum of Understanding between the Office of the Scottish Charity Regulator and the Regulator of the Community Interest Company’, available at: <www.oscr.org.uk/media/1418/ community-interest-companies-mou.pdf> accessed 24 September 2017.
Dunn and Riley (n 81) 651. According to Dunn and Riley: ‘The Government has attempted to walk a fine line here, pursuing the not-for-profit philosophy that is attractive to the philanthropic, without wholly alienating more commercial investors’. See also the main types of financing in CIC Regulator Office, ‘Chapter 7’ (n 198) 3-11.
See Sub-section 2.7.3. This means that they have very limited access to equity capital and they will be primarily financed either by loans, grants and donations or by the income which is generated by the commercial activities which they undertake.
Spiess-Knafl and Achleitner (n 219) 162.
A share capital fund contributed by the shareholders and maintained in fulfilment of creditors’ liabilities. 2006 Act, ss. 5 and 10(2). Dorresteijn et al. (n 129) 148-149, para. 4.23.
See Sub-section 2.4. See Nicholls (n 49) 394, 396.
A very important requirement for a CIC as a limited liability company is the fulfilment of its mission by accessing capital from either internal or external sources of finance.1 Unlike private limited companies, either a CIC that is limited by shares or guarantee is excluded from acquiring a charitable status.2 Whilst a charitable company registered in England or Scotland is eligible to convert to a CIC (and vice versa) subject to the consent of the competent authorities, subsequent to any conversion, the company will lose its charitable status and any benefits that such status confers.3
However, the CIC legislation contains provisions, such as the asset-lock schemes that attract investors who are looking for their investment to be preserved within the organisation in order to fulfil its community objectives. The types of investors that the CIC legal form will appeal to may differ from the investors that ordinary limited liability companies often attract.4 Depending on whether a CIC is a company limited by guarantee or shares, CICs will be subject to differing financial opportunities.
As explained above, companies limited by guarantee are private limited liability companies with no share capital or shareholders. As such, they are prohibited from issuing any share capital, and they are not allowed to distribute profits to their members.5 Spiess-Knafl and Achleitner note that even though grants and donations may confer advantages upon CICs limited by guarantee, such as the absence of obligations of repayment, voting rights or powers conferred upon the donors, they have also been proved disadvantageous for the development of a CIC limited by guarantee. That is because donors usually provide ‘only for project-related costs’ and they are ‘unwilling to cover more than a minimum share of the administrative costs or any expenditure for corporate development’.6 Companies limited by guarantee can be contrasted with companies limited by shares. The latter are private limited liability companies with share capital. Consequently, CICs that are limited by shares can raise ordinary share capital by issuing shares with a specific nominal value and provide rights to shareholders regarding the payment of dividends when profits are available for distribution.7 However, in the case of the CIC, the community objectives and the asset-lock provisions override shareholders’ objectives to receive profits.8