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Companies (Audit, Investigations and Community Enterprise) Act 2004

Change of status

Section 52  - Re-registration

258.This section brings together provisions on the re-registration of CICs.  Subsection (1) provides that once a company is registered as a CIC, it will not be able to re-register as an unlimited company.  Such companies are able to take advantage of reduced regulatory and reporting requirements under the Companies Act 1985, and this would be inconsistent with the reporting requirements placed on CICs by section 34, which are intended to complement the requirements on ordinary limited companies.  Subsection (2) ensures that any certificate of incorporation issued in respect of a private limited CIC upon re-registration as a public limited CIC or vice versa will contain a statement that the company is a CIC.

Section 53 - Ceasing to be a community interest company

259.This section provides that a CIC cannot lose its status as a CIC except by the methods described in the following sections.  This provision is effectively part of the ‘asset lock’, since it ensures that the members of a CIC cannot get round the restrictions to which CICs are subject, by ceasing to be a CIC and then distributing the company’s assets.  If a CIC is dissolved, it is intended that the residual assets will be preserved for the community benefit, under regulations to be made under section 31.  Conversion to a charitable company under  sections 54 and 55, or to an industrial and provident society  section 56, would impose other restrictions on the distribution of assets.

Section 54 - Becoming a charity or a Scottish charity: requirements

260.This section sets out the steps that a CIC must take if it wishes to give up CIC status and become a charitable company.   Subsection (1) requires the CIC to change its name and make any other appropriate changes to its constitution by special resolution, and subsection (2) requires such changes to be notified to the registrar.  Where changes are made to the company's memorandum under section 4 (alteration of objects) or section 17 (changes to provisions in memorandum that could be included in articles) of the Companies Act 1985, section 5 of that Act gives members of the company a right to apply to court. Therefore, subsections (3) and (4) provide that where such changes to the memorandum are made, the company must not submit its application to give up CIC status until either the changes have been confirmed by the court, or the deadline for objections has passed.

261.For CICs with their registered offices in England and Wales, or in Wales, conversion to a charitable company will not be permitted without a written statement from the Charity Commissioners that in their opinion, the CIC will have charitable status (and will not be an exempt charity) once the special resolutions have taken effect (subsection (7)).  For CICs with their registered offices in Scotland that wish to become a Scottish charity, a written statement from the Inland Revenue will be required, confirming that the CIC has applied for recognition as a Scottish charity, and would be granted such recognition if it ceases to be a CIC (subsection (8)).  The relevant written statement must also be sent to the registrar (subsection (6)(b)).

Section 55 - Becoming a charity or a Scottish charity:  decisions etc.

262.This section sets out the process through which the Regulator will decide whether a CIC seeking to become a charity or Scottish charity is eligible to cease to be a CIC.  The company will not be eligible if the Regulator has exercised certain supervisory powers in respect of that CIC, and the exercise of those supervisory powers is still ongoing (subsection (4)).

Section 56 - Becoming an industrial and provident society

263.This section makes provisions about the conversion of a CIC to an IPS. Companies can convert to an IPS under the Industrial and Provident Societies Act 1965, but under subsection (1) CICs are to be prohibited from doing this until such time as regulations remove the prohibition.  If the prohibition is removed, regulations may also amend section 53 of the Industrial and Provident Societies Act 1965 to ensure that conversion takes place in a particular manner (subsection (2)).

264.The section prohibits conversion because IPSs do not currently have an asset lock, so that the ability to convert to an IPS would allow CICs to circumvent the asset lock (see note on section 53 above).  The section makes provision for regulations to remove the prohibition because the Co-operatives and Community Benefit Societies Act 2003 includes a power for the Treasury to introduce an asset lock for community benefit societies, which are a sub-set of the IPS corporate form (see section 1(1) and (2) of the Industrial and Provident Societies Act 1965).  It is intended that regulations  under subsection (1) will only be made in the event that the Treasury enacts secondary legislation to introduce an asset lock for community benefit societies.  If such regulations are made, they will only allow CICs to convert to community benefit societies that have such a lock, and not to a community benefit society without an asset lock, or to any other type of IPS.  It is anticipated that in this event, regulations would need to be made under subsection (2) to enable a seamless transition from CIC to IPS status, ensuring that the organisation’s assets remain protected from distribution at all times.

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