Should you use the CIC dividend cap? It’s a question a lot of directors and board members of CIC organisations have to ask themselves.
The community interest dividend cap is there to help CICs remain community activist organisations. The primary goal of a CIC is to improve local communities. For that reason, there are limits on board member salaries and the number of assets a CIC can hold. This is the same logic behind a dividend cap for CICs.
Today we’re going to take a deep dive into CICs. We’ll talk about the definition of a CIC, what is the community interest dividend cap, and much more.
Our goal is to educate you so you can decide if becoming a CIC is the right move for you. And, if you already have a CIC, we’d like to show you how to optimise it to get it running as smoothly as possible.
But, there’s a lot of information to cover. So, let’s get going!
What Is A CIC?
The official CIC definition is a social enterprise that plans to use its assets and profits for the good of local communities. CICs are unique because they’re not a business, but they’re not a strict “not for profit” organisation either. CICs lie somewhere in the middle.
The result is that CICs have some interesting advantages to enrich the communities they serve.
What makes CICs different than a traditional “not for profit” is that CICs can deliver returns for their investors. These organisations are registered as companies and not charities. Therefore, they aren’t subject to the same strict rules and regulations that govern charitable organisations.
What Is the Community Interest Dividend Cap?
CIC companies can be limited in one of two ways. They can either be limited by shares or guarantee. The community interest dividend cap deals with companies that choose shares.
If the CIC is limited by shares, a dividend cap must be put into place. The law requires CICs to cap investor dividends in order to maintain the balance between being a “for-profit” company and a community organisation. Yes, investors deserve to get attractive returns on their money, but that’s not the chief aim of a CIC.
Currently, the aggregate dividend can’t exceed 35 percent of the CIC’s distributable profits. If a CIC doesn’t distribute dividends close to 35 percent, it can carry over that unused dividend capacity to the next fiscal year.
The community interest dividend cap is an important part of the CIC structure. It’s instrumental in helping CICs to straddle the fence between “for-profit” corporations and community activist organisations. And, ultimately, that’s the place where CICs can do the most good.
If you have any questions about formulating your CIC or tax implications for your community interest company, contact KG Accountants today.
We’re here to help. Let us serve our community by helping you serve yours better.
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