The remaining profits must be used to serve the company’s stated social objectives.
This week the Community Interest Companies Act, which was passed in December 2012, came into force with regulations to allow for the registration of Community Interest Companies, or CICs. They will have more freedom than not-for-profits and more capital restrictions than normal companies.
Traditional societies incorporated under the Societies Act can’t raise capital from equity investors and usually can’t operate for-profit enterprises.
Registered charities under the federal Income Tax Act are limited to pursuing a narrow range of goals related to poverty relief, education, religion, and other notions of charity.
From now on, a company incorporated under the Companies Act, and designated a CIC, may use its assets to pursue a “community purpose” that goes beyond the financial interests of its shareholders. These purposes might include health or social services, or something to do with the environment, culture, or education, but not politics.
Existing corporations can convert to a CIC, but the designation can’t be reversed.
The new designation raises the question of why an ordinary company would want to submit themselves to the “asset lock” built into the new regulations.
Alongside the dividend cap, there is a requirement that upon dissolution, assets will be distributed to a co-operative, society, charity, or institution whose goals match up with the CIC.
The institutions that may inherit these assets include universities and community colleges, school boards, hospitals, the three tiers of government, and the provincial health authority, gallery, and museum network.
Companies applying for the designation must declare their community purpose and present a community interest plan, followed by annual reports on their community impact.
The majority of that capital would flow to the wellbeing of the community of interest.
Advocates for the concept also say it will help companies engaged in social enterprise to offer a guarantee to customers and investors that they are committed to social goals for the long haul.
