The 'asset lock' - is a CIC the right structure for your social enterprise?

We often get asked by clients “is a Community Interest Company (CIC) the right structure for me?” and the asset lock is a key consideration for those thinking about setting up a CIC. It is important to understand what the asset lock is and what it means for your business as it is a permanent feature of CICs.

The Office of the Regulator of Community Interest Companies has recently published information on the ‘mystery’ of asset-locked bodies in an effort to assist those in operating or looking to set up CICs.

The asset lock

In order to be incorporated as a CIC, a company’s articles of association are required to contain a provision that its assets must either be retained within the CIC to be used for community purposes or, if assets are to be transferred out of the CIC, the transfer must satisfy certain requirements. Any transfer of a CIC’s assets must satisfy one of the following requirements:

• the transfer is made for full market value;
• the transfer is made to another asset-locked body (a charity, a permitted registered society, a CIC or an equivalent body established outside the UK), which is specified within the articles of association;
• the transfer is made to another asset-locked body with the consent of the CIC Regulator; or
• the transfer is made for the benefit of the community.

As a limited company, a CIC is subject to the same duties and obligations under company law as other companies that do not have CIC status. Accordingly, the asset lock is not intended to preclude a CIC from using its assets for usual business activities, including normal trading and meeting financial obligations – including meeting a CIC’s debts.

The long-term

When considering whether a CIC is the right structure for your social enterprise, it is important to think about long-term opportunities as the asset lock will have a bearing on what you can do in the future. The asset lock applies to all transfers made by a CIC, including transfers in the event that you wish to sell or wind up your business, and payments to staff and directors.

CICs incorporated as companies limited by shares are also subject to specific provisions on payment of dividends, depending on the type of articles of association that have been adopted. In certain circumstances, CICs may only pay dividends to specified asset-locked bodies or other asset-locked bodies with the consent of the CIC Regulator, which are not subject to a specified dividend cap. In other circumstances, CICs may pay dividends to shareholders, including private investors who are not asset-locked bodies, which are subject to the dividend cap.

On that basis, it is important that your CIC is set up with the articles of association that are most appropriate for what you want to do in the long-term.

Get in touch

For further information on whether a CIC is right for you, please get in touch with a member of our team.