Wednesday, 17 January 2018

Co-op or CIC? Why not both?!!

On a number of occasions over the past year or so I have had social enterprise clients tell me that they would like their social enterprise to be a co-operative but prefer the CIC as a legal form so have opted for that instead. The reasons are commonly around accessing funding, protecting the assets of the enterprise, wanting the "CIC" badge or just the ease with which anyone can register a CIC.

The good news is that it is possible to do both!  I thought I should throw this blog together as the issue keeps cropping up, and then I can say: "Read This!"

First off, let's clarify the issues at the heart of this quandary.  Social enterprises (like all enterprises) have to decide how they want to organise (ownership, governance and management) and then pick a legal form that enshrines this way of organising while meeting their trading, finance and other business requirements.  The diagram below shows how the legal structure addresses these issues.

The "co-operative" bit is the way of organising, where ownership and democratic control is exercised by one or more stakeholder groups. A co-operative is an enterprise that abides by the ICA co-operative values and principles.

CIC is a legal form, like Company or Society. it is a Company with special status within the law that provides a statutory asset lock and limits on profit distribution.

Co-ops use a wide range of legal forms including Co-operative Society, Community Benefit Society, Companies and CIC can be among them - as long as the co-op can satisfy the CIC community interest test and conditions on asset lock and profit distribution. I have registered a few co-operative CICs (and been  Director of a Co-operative CIC). I have also provided support to a number of existing CICs who organise as co-operatives and have the co-operative values and principles written into their governing document (Articles of Association).  Co-operatives UK even has a model governing document to specifically adddress organising around Co-op Values & Principles and meeting CIC Regulator requirements.

Can a CIC truly be a co-op?
It really depends who you ask.  Some co-operative practitioners have registered dozens of CICs whereas others have never been near them.  A good point was raised by my colleague, and mate, Andy Woodcock of Acorn Co-op Support (which is itself a member of Co-op Culture).  If you look deep into the legislation (check out Chapter 11 of the CIC Regulator guidance) you will find that The CIC Regulator has the power - among other things - to appoint and remove Directors or appoint a manager.  This doesn't exactly sit well with the Co-operative principles of Member Democratic Control and Independence and Autonomy.
But there is some qualification: "The powers will not therefore be used lightly and in general it is expected that the members and directors of a CIC will ensure that the CIC conducts its affairs honestly and in accordance with the law and its own constitution." So, arguably as long as you act within the law your democracy, independence and autonomy will be preserved.  It is worth pointing out that Societies and Companies can also have action taken against them through the courts!
For some people this will matter.  For others it won't! 
So, if you want to create a co-operative and register as a CIC, or are an existing CIC that wants to change your governing document to reflect Co-operative Values and Principles then get in touch and we can discuss how I can help you.