British Columbia is making it easier for do-gooders to make money and give back to the community by setting up a new business model which is also aimed at attracting socially conscious investors.
B.C.’s so-called Community Contribution Company (C3) caps a company’s profit at 40 per cent, even after the business is sold. The remainder goes to social causes, which can range from homeless shelters to recycling programs.
The province is the first in Canada to introduce the new corporation category, with Nova Scotia expected to soon follow.
Since the regulations took effect on July 29, 2013, at least three companies have registered to become a C3, including a new social enterprise consulting company started by David LePage and three partners. Mr. LePage was part of a consultation team that helped to craft the legislation, which included amendments to the province’s Business Corporations Act.
“We’re trying to join together what is mostly been seen as an oxymoron – business and social value. We’re looking now at how do you use business models to create social value,” says Mr. LePage, whose new company is called Accelerating Social Impact CCC Ltd.
Supporters of the new corporate structure say it’s about time a new hybrid model was created, since existing legislation for non-profit and for-profit companies have limitations. For instance, non-profits can’t issue shares or pay dividends, which makes it difficult to lure investors. For-profit firms pay dividends, but where they put the money is up to shareholders who may not share the company’s willingness to contribute to social causes.
Still, many argue the C3 model has too many restrictions and can create too much red tape, which will create barriers for both companies and investors. There’s also concern that the plan, which the provincial government promises will create more jobs, will turn out to have little impact.
To become a C3, companies need to fill out the proper forms and the status is instantaneous, however, it takes a few days to prepare and people should seek professional advice before they do it.
The C3 structure is modelled after a similar program in the United Kingdom, known as Community Interest Companies (CICs). More than 6,000 CICs have registered in the UK since the program started in 2005.
B.C.’s program comes after three years of consultation between the government and a group known as the B.C. Social Innovation Council, which is a mix of non-profits, business, government and community leaders.
C3s differ from private companies because they include an ‘asset lock,’ which includes a 40-per-cent cap on dividends that can be paid out to shareholders. The remaining profit must go towards community purposes or held and transferred to a qualified organization, such as a charity, according to the government. Companies that set up a C3 are also required to have three directors and to publish an annual report describing their activities.
Companies interested in taking on the C3 status can do it at the time of incorporating their company, or if they amend their existing corporate structure, which means getting approval from its shareholders.
“It’s a new kind of company, a new innovative business model,” says B.C. finance minister of Michael de Jong in an interview.
In announcing the new business model, Mr. de Jong says it will generate “meaningful, local employment in B.C. and generate economic wealth for our province” by spurring private investors who want to put their money into these types of companies.
While the idea sounds good, Joel Solomon, chair of Vancouver-based social venture financing firm Renewal Funds, says it still needs to be tested to see if it will generate jobs and investment in the province.
“The devil is in the details,” he says. “New models require testing and refinement, along with extra support of early adopters, or they are simply a public relations exercise … time will tell if it’s a symbolic gesture or if there is real commitment to social goods.”
He says the government also needs to maintain ongoing support for social enterprises, which includes recognition they create jobs and shouldn’t be a constant source of cutbacks.
“The business sector is unlikely ever to replace most necessary functions of government,” he adds.
It’s those cuts to social sector grants that are driving some non-profits to seek for-profit means to maintain their business, says Del Friday, an associate who works with small business owners at Vancouver-based law firm Kuhn LLP.
While the new model should attract companies that want to contribute to social causes, Ms. Friday says businesses need to be aware of the restrictions and requirements for C3s.
“We are talking about a normal business and adding a few layers of regulation. You have to really know that you want to do this. It has to be an integral part of your business model because you will run into extra expenses,” she says.
Andy Broderick, vice president of community investment at Vancity, says many of companies that will sign on will likely be new ventures. Vancity, which was also part of the consultation group to implement the C3 model, says the new structure allows it to offer more financing to social enterprises, which its members have been requesting.
“We see C3 as another tool that will help increase the number of companies out there that will be thoughtfully run. Our credit won’t have to turn them down because they are structured for a double bottom line, but don’t have a legal structure that will protect that,” he says. “This is just one more thing that should allow us to move more capital into community goals. It’s more of the kind of business we’re looking for.”
Mr. LePage, of Accelerating Social Impact, acknowledges the C3 model isn’t for everyone, but offers an alternative.
“It changes the landscape of options and it’s a very important step, but we have to be careful of what we expect it to do,” says Mr. LePage, who is also the team manager at Enterprising Non-Profits, a program that supports social enterprise development.
“For a lot of young entrepreneurs who want to do good and do business it’s a great model. For some non-profits and charities that want to set up subsidiaries for profit it’s a great option. But people are going to use the existing model when it’s right for them,” he says.
“It’s great to have another avenue to blend social values into business, but it’s not the only way to do it.”