CIC Regulator Sara Burgess explains a key regulatory change due for introduction in October 2014 that will come as welcome news to good causes, Community Interest Companies (CICs) and their investors.
In 2015, the Community Interest Company (CIC) model will be ten years old. It has proved to be one of the fastest-growing structures in many years, in spite of some early reservations, hesitation and fears.
CICs have slotted very successfully into the mix of options for meeting social need and delivering social purpose. They have weathered the economic crash and the numbers continue to increase. By the time we get to the 10th anniversary in June next year, there will be well over 10,000 CICs across the UK and we are likely to see more growth following some key recent initiatives.
CICs limited by shares have always been able to distribute some of their profits in share dividends to private investors. Over the years it has become evident that the regulations around this created barriers to setting up a CIC limited by shares and to investment into them. We made some changes in 2010, but when we consulted on it again in 2013 it was clear there was more to do.
In October 2014, the regulations will change to remove the 20% cap on share dividends and as a result of this remove the peg to the paid-up value of the share, which amongst other things was making CIC shares of little interest to investors.
CIC shares will have greater value, but CICs will still only be able to distribute 35% of post-tax profit in dividends, everything else is kept in the company. The more profit the company makes, the more it can pay in dividends (within the 35% distribution cap).
If a CIC has sufficiently more profit to pay its shareholders, it is making sufficiently more profit to put back into the purpose of the company, to meet its community interest. If the CIC is paying millions in share dividends, imagine how much it will be putting back into its community interest! Shareholders will get a return on their investment and see a return on the social impact of the company. Once it is set up, the CIC will always be a CIC, unless it winds up so it won't be taken over by shareholders who want to take all of the profit.
If you’re planning to start a business, you will need to decide how you want to trade, whether it’s as a limited company, partnership or sole trader. This will largely depend on how many people are involved, the type of business and how you want it to be run.
If you’re going into business alone, becoming a sole trader may be the best option. However, if you want to work with and employ a number of people, you can trade as a partnership or a limited company. But which one is best?
A partnership has a very different structure from a limited company in terms of accounts and liability. There are, though, advantages and disadvantages to both, so you need to know all the risks involved before you dive in.
A partnership is similar to a sole trader business but, of course, a partnership must involve two or more people to own the business and share the responsibility. This can have its upsides and downsides, but the main points are:
As licensed insolvency practitioners, we’ve come across numerous partners who have realised too late just how liable they really are. If a partnership is the preferred type of business, all partners must be aware of what’s at stake and know exactly what they are getting into from the beginning.
This is a corporate structure that gives partners limited liability and has similar traits to that of a limited company, while keeping the tradition of a partnership. It gives partners the benefits of a partnership, but allows them to be only partly liable if things were to go wrong.
A limited company is owned by its shareholders (usually the directors) and all profits generated belong to the company. The company debt remains separate from individuals.
It’s impossible to tell how well a company may do in the future. If the business is a success, a partnership can be highly beneficial. However, if the business were to fail, would you be prepared to pay off the entire debt and put your own personal finances at stake? Regardless of the kind of business you want to set up or how many people you want to involve, you must consider all the risks (as well as benefits).
This article provides only a basic introduction – it does not constitute legal advice. The law on partnerships in particular is complex, with little case law, therefore you should always consult a lawyer if you are worried about your personal situation in any partnership and indeed company.
Every day, thousands of people set up their own businesses. Many will agree that starting your own business is a great, but challenging experience. You need to understand the ‘start-up’ process, because this makes a big difference to the success of your new business. Here are the necessary steps to consider when starting up your new business.
Coming up with a viable business idea can be challenging and initial brainstorming can help you to arrive at one. Think about issues that people are faced with every day and write them down. Helping to solve such problems could enable you to come up with some excellent ideas. You could even brainstorm ideas that improve existing products and services.
Tip: Think of products and services that will add value to people’s lives.
This is where you will validate your ideas. You need to determine and test whether your product or service is viable by researching your potential market.
Ask yourself, “Is my product or service niche? Is there space for it or is the market saturated?” Are you likely to make enough sales given the size and nature of your target market?
There are many ways in which you can conduct basic market research, including seeking the opinions of family and friends. Also be sure to speak to people you don’t know.
Tip: Don’t just rely on secondary research, web resources or surveying only the people you know. Poor research can steer your business in the wrong direction.
This seems like a very obvious step, because you would need a business plan to secure a business loan. However, this step involves strategic planning and requires your full involvement. It will involve identifying your funding, business risks, as well as your aims and objectives. Here you will also evaluate your competition and understand your business’s cashflow.
Tip: Focus on the vision and viability of your business, potential for profits and the resources required, as well as a strategy for your success.
The assitance of a reputable accountant can prove invaluable when starting your own business. They will be able to provide you with assistance, objectivity and expertise. Your accountant will also be able to help determine the best legal structure for your business and help you establish bookkeeping and other forms of record-keeping procedures. This will ensure you stay on track and up-to-date on all your paper work.
Naming a business is a key decision. The name of your business is the first thing that potential customers will notice, so think of it as the entry point for your business.
Think about your target market, product/service and image that you want to project to your market. Your name should work well wherever it is used, whether over the phone, on stationery, website, logo, etc.
Also, it’s important to check whether the name you want to use is available. You can do this by searching the National Business Register.
Remember: Whatever name you choose, it should make you stand out from your competitors.
No matter what structure you choose, you are likely to work with a number of different people to develop your business, such as suppliers, possibly distributors and maybe partners.
You may want to find a co-founder with the necessary skills and knowledge in order to assist where necessary. Whether you need materials to make your product or equipment to run your service, it’s possible that you will work very closely with your suppliers.
A good way to search for reputable suppliers is by asking other businesses in your field or by searching online. Make a list of those that you thought were good and arrange a meeting in order to talk about their prices, to develop a relationship and to get an idea of which suppliers are reliable and trustworthy.
Before you register and begin trading, you must choose which legal structure is suitable for your business. When deciding, it’s wise to understand what each structure involves. Most businesses in the UK are sole traders, limited companies or business partnerships. You also need to find a way to fund launching your new business. There are many other steps you have to consider when wanting to start your own business, but by following the above steps, you will be ahead of the game.
This blog was provided by 1st Contact Accounting.