CIC Regulator favours reform of dividend and interest caps

The CIC Regulator has published her response to the public consultation on the dividend and interest caps.  This consultation relates to Community Interest Companies (CICs) which are set up as companies limited by shares using the ‘Schedule 3’ model.

Acknowledging complaints that the asset lock was deterring social Entrepreneur from investing in CICs, she drew the following conclusions:

1. the double cap on dividend payments (up to 20% of the paid up value of the share and up to 35% in aggregate of the profits available for distribution) is cumbersome and the maximum dividend per share cap should be removed;
2. the maximum aggregate dividend cap should be retained at 35%; and
3. the maximum interest rate for performance related interest on loans (i.e. quasi-equity) should be increased from 10% to 20%.

It is anticipated that legislation will now be prepared for parliamentary consideration in tandem with proposals for the new social investment tax relief.

Earlier this month Social Enterprise UK wrote to the CIC Regulator outlining concerns that some CICs had been wound up and residual assets applied for private purposes, contrary to the asset lock requirements.

For more information please contact Joanne Davison or call 0191 211 7958.