A number of new share capital corporate vehicles that are designed specifically to accommodate social enterprise have been introduced in Canada. In British Columbia, a new category of company called "Community Contribution Companies" (CCCs or C3s for short) can now be incorporated. Similar legislation has also been passed in Nova Scotia, which will provide for the incorporation of "Community Interest Companies" (CICs) at a date yet to be determined.
Both British Columbia's C3s and Nova Scotia's CICs are hybrid social enterprise structures modelled on the U.K.'s community interest company. While some of the detail surrounding CICs is unknown at this time as the Nova Scotia's regulations are yet to be released, the basic features for CICs and C3s are very similar. Just like traditional for-profit companies, C3s and CICs will be able to accept equity investment and issue shares. However, in order to qualify as a C3 or CIC one or more of the primary purposes of the company must be community purposes. "Community purpose" in both the British Columbia and Nova Scotia legislation is broadly defined as a purpose beneficial to society at large or a segment of society that is broader than the group of persons who are related to the company, and includes, without limitation, a purpose of providing health, social, environmental, cultural and educational services. Interestingly, while Nova Scotia's legislation specifically excludes political purposes, British Columbia's legislation does not include this restriction.
Other differences between standard companies and C3s and CICs include the following:
- both CICs and C3s are subject to an “asset lock” on dissolution, which requires that the company distribute all or a prescribed percentage of its assets to one or more qualified entities, such as registered charities. In British Columbia the prescribed percentage is 60 per cent;
- both CICs and C3s are subject to statutory limits on the amount of dividends that can be paid to shareholders. For instance, the total dividends declared by a C3 in a year cannot exceed 40 per cent of the C3’s annual profits (plus any unused dividend amounts from previous years). However, this restriction does not apply to classes of shares that can only be issued to registered charities or other “qualified donees” (as defined in the Income Tax Act (Canada)); and
- C3s must annually publish a community contribution report which includes a description of the C3’s activities that year that benefited society, the remuneration and position held of each person in the C3 who made more than $75,000 that year, the C3’s annual financial statements, details of any transfers of money or other assets by the C3 worth over $10,000, and the amount of dividends declared on all classes of shares of the C3. The community contribution report must be kept at the C3’s corporate records office and must be posted on the C3’s website if it has one. CICs must annually produce a similar community interest report for shareholders detailing the company’s activities and spending in the previous year.
It is important to note that both C3s and CICs are taxed in the same manner as traditional for-profit companies.
These new social enterprise vehicles are designed to provide a tool for social enterprises to raise capital from socially conscious investors. It is anticipated that C3s and CICs will be used primarily by socially conscious entrepreneurs or by charities or not-for-profit organizations wishing to carry on unrelated businesses without jeopardizing their tax-exempt status.
Brendan Burns SUPPLIED