CIC regulator launches review on dividend cap

CIC regulator launches review on dividend cap
Civil Socety, by Vibeka Mair

The Community Interest Companies Regulator has launched a consultation on the limits on share dividends and performance-related interest that can be paid out to investors by community interest companies.

Currently, community interest companies (CIC) dividend pay-outs are capped at 20 per cent of the initial investment. There is also an aggregate cap of 35 per cent on all distributable profit of a CIC.

The consultation launched this week asks if the cap on dividend pay-outs should be increased to 49 per cent. It also asks whether the cap should be set at an individual share dividend, an aggregate or whether there should be only one cap.

The consultation also looks at profits and whether it’s reasonable to distribute up to 49 per cent of profits to employees of the CIC, professional investors, community investors or an individual who starts a company.

John Mulkerrin of the CIC Association said: "In an ever-changing world of payment by results, cuts and the desperate need for innovation any changes could have huge implications for civil society as a whole moving forward. At what rate does sharing surplus from trading efficiency within civil society, or rewarding entrepreneurs for starting up CICs and making them a success become profiteering?

"The CIC cap must enable the former and protect from the latter. From the reforms of the NHS and the crisis in social care to name just two challenges, through to the opportunities such as using CIC shares to dramatically increase the participation of employees and grassroots investors, there is a lot of good that can be done if we get this balance right.
"This review is the last chance in a long time to make any meaningful changes to the caps and I hope we make it count."

The stakeholder survey can be accessed here.

CICs were introduced in July 2005 as a bespoke legal form for social enterprise, combining the flexibility of a limited company with a community purpose. The business model enables social enterprises to attract investment by issuing shares and paying returns to investors, while a limit is set on those returns to guarantee the majority of profits are put back into the community.

There are now more than 7,000 CICs in the UK.