Heather MacDonald, Corporate/Commercial Department
A New Model for Carrying on a Business With a Social Purpose
Effective June 15, 2016, Nova Scotia Companies can apply to obtain the designation of “Community Interest Company”. Companies that hold this designation (“CICs”) are able to carry on a for-profit business, while at the same time having an ingrained, dedicated community purpose. They are hybrids of the traditional corporation, where profits ultimately go to the shareholders, and the not-for-profit society, which prohibits the issuance of shares, the declaration of dividends and the distribution of assets to its members. Nova Scotia societies cannot be created for the purpose of carrying on any trade, industry or business, so the ability to use a society to carry on any type of business, even if that business is designed to contribute its profit back to the society’s social purpose, is restricted. In recognition of the lack of a corporate model that treads the middle ground (pairing a for-profit business with a desire to benefit the community), and as a result of a push by those interested in social enterprise in the Province, the Community Interest Companies Act became law in Nova Scotia earlier this year.
Given their for-profit nature, CICs cannot be charities and their income is taxable like any other for-profit corporation. In contrast with societies, CICs have the ability to issue shares, which can be useful to bring private investor capital into the company, particularly from those interested in investing their money in a way that will benefit the community. Examples of the use of CICs in other jurisdictions include a pest control company that offers training and employment to people who have barriers to employment (such as poverty and disability) and a community group that created a CIC to purchase and operate a ferry that serves as the economic lifeline of their community.
CICs have two unique features that are designed to ensure the company’s assets remain dedicated to its community purpose. One is the asset lock, which restricts the ability of the company to transfer its assets other than in specified circumstances, such as a sale for fair market value, a transfer in furtherance of the company’s community purpose or a transfer to a qualified entity (defined to include societies and registered charities). The second feature is the dividend cap, which puts restrictions on the ability of the company to distribute profits by way of dividends. The CIC is also restricted in where its assets can be distributed on dissolution or windup. Each CIC is required to file an annual community interest report detailing its activities over the preceding year, thereby providing public accountability.
If you are an entrepreneur who is interested in establishing a business that will give back to the community or a current non-profit organization interested in options for carrying on a business in furtherance of the organizations social mandate, please contact us (902-752-8441) to obtain further information about the CIC model.
-*This article is meant to be for information purposes only and is not intended to be legal advice or opinion. If you have any further questions please consult a lawyer. Many of the statements in this blog post are general principles which may vary depending on each person’s case.