Companies (Audit, Investigations and Community Enterprise) Act 2004
2004 CHAPTER 27
Commentary on Sections
Part 2: Community Interest Companies
Summary and background
Section 35 - Community interest test and excluded companies
223.This section makes provisions about the community interest test, which is used in determining the eligibility of a company to be formed as a CIC (section 36(5)(b)) or to become a CIC if already incorporated (section 38(4)(b)). The Regulator can also exercise certain supervisory powers if a CIC ceases to satisfy the community interest test (section 41(3)(c)). All CICs will be expected to carry on their activities for the benefit of the community for as long as they remain CICs.
224.The section describes the community interest test (subsection (2)), and clarifies the meaning of the term “community” for the purposes of this test (subsection (5)), so that a community can be a section of a larger community (either geographic or a community of interest) and can be overseas. The test is that a reasonable person might consider that the activities being carried on by the CIC are being carried on for the benefit of the community. Therefore, if a reasonable person can conclude that the activities of the company are being done for the benefit of the community, those activities will pass the test, unless those activities are prescribed by regulations under subsection (4) as not satisfying the test.
225.Subsection (3) sets out the circumstances in which an object in the memorandum of a company is to be treated as a community interest object. The question of whether a given object is a community interest object is relevant for the purpose of section 41(3)(d) (conditions for exercise of supervisory powers), and is discussed in the note on that section below.
226.The section also provides for regulations to:
establish that certain activities are, or are not, to be considered as satisfying the community interest test (subsection (4)), and
specify what constitutes a section of the community (subsection (5)).
227.For instance, it is intended that regulations will identify a group consisting of employees of a single employer (e.g. in a company sports association) as capable of comprising a sufficient section of the community for the purpose of the community interest test. These powers to make regulations are intended to make it possible to clarify the breadth of the community interest test over time.
228.Regulations may also provide that certain descriptions of company are excluded companies (subsection (6)). Excluded companies are not eligible to be formed as a CIC or to become a CIC (sections 36 (5)(b) and 38 (4)(b)). It is intended that initially political parties and companies owned by them, and political campaigning organisations, will be classed as excluded companies. If a CIC becomes an excluded company, the Regulator may order the transfer of shares or membership in that CIC under section 49. It is intended that the Regulator would use this power to remove a CIC that became owned by a political party from the control of that party.
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