Don’t be evil

It’s getting on for a year ago that I posted about organic bodies, and the quest for a form of incorporation that I actually like. One that lets you organise a group of people, is efficient and agile enough to compete with for-profit companies, but which doesn’t sell out the world down the line. A form of incorporation which you could use to start a Google, that would enable it to grow just as large, but with a guarantee of “don’t be evil” that a stock-listed corporation could never have.

When I last wrote, Limited Liability Partnerships were the newest shiniest form of incorporation. In the fast-paced, heady world of organic body legislation, early adopters have already moved on from LLPs. The cools kids are getting ready to set up the first Community Interest Company (CIC) when the new legislation comes into force in July. And they look more relevant to me than LLPs.

  • A Community Interest Company (CIC) is a slight modification of an LLC (Limited Liability Company, whether by shares or guarantee, or a public limited company). This is a good start, as it isn’t a wild new structure. You can easily convert an LLC to a CIC.
  • The company must pass a community interest test that “a reasonable person could consider the CIC’s activities to benefit the community”. The definition of community is quite broad. Basically, any largish group of people other than the employees or owners of the company.
  • The directors have to sign and file a “community interest statement” that the company will serve the community rather than private profit motives. The company must produce an annual community interest report, filed to Company House with their accounts. This records what the CIC has done to persue the company interest in the year.
  • An “asset lock” keeps capital within the company, you can only transfer assets out of it at full market value, or by giving them to another CIC or charity. If the CIC issues shares to get investment, the dividends are capped by the CIC regulator. Similary, pay that directors receive must be considered justified for the benefit they give, or the asset lock and hence the community interest test is broken. And if the company winds up, money must go to another CIC or charity.

(Links to the factsheets with this info on are at the DTI website.)

It’s not quite clear that this legislation was really designed for people setting up businesses in general areas of industry. Business link gives leisure centres and housing associations as examples. But also, to be fair, worker-owned co-operatives.

So is this thing useful? It allows normal competitive trading, and has a light regulatory touch. It doesn’t prevent corporate buyout or floating on the stock exchange. But it makes sure that if either of those things happen, the goals of the company have to stay the same, and any profit can’t be sucked out of it. Perhaps this is the new corporate form to take over the world. A cautious thumbs up. Comments?

7 thoughts on “Don’t be evil

  1. Just to turn this around slightly, what (besides PW and related enterprises) do you think would make a good community-oriented IT business? What specialist IT services do communities need, have money to pay for, and not already have?

  2. I think it would be a good form for an IT company serving charities, such as the Circuit Riders movement does. Charities already have to spend money on IT services, so it would more be a means to compete with existing suppliers rather than make a new market.

    Also fits well with open source software, and the CIC developing that on behalf of all charities, rather than developing something it owns and exploits. Or if the CIC were to develop something it owned and exploited, you could guarantee the money being sucked out of charities was spent on more software to benefit them. Actually, perhaps a CIC owning proprietary software is a better model than consulting to develop open source.

    Other obvious fields are education and healthcare. Basically any IT services for anything government run is a good candidate. i.e. Society already agrees the government should run the service in the interest of the community, rather than profit. So it makes sense that money that services spends should also be run in a similar way.

    The main loss comparing a CIC to a co-operative is that there is no ownership benefit for workers. However, they do get the benefit that the company they are building is useful and beneficial to people who the workers care about more than they care about its owners. Certainly, if I were an employee, I’d rather work for such a company. Why should my hard work turn into someone else’s profit?

  3. Is the jury still out on whether a workers coop could be a CIC? I think there is tension between autonomy and community interest in them. Could a consumers coop be a CIC? Possibly.

  4. I don’t see why a CIC can’t be a workers co-operative. In a straightforward legal sense couldn’t you use workers co-operative articles of association for your CIC company? It is just that the owning workers would have to obey the community interest restriction, in the same way that a private owner of a CIC would have to.

    However, it does strike me as using all the buzzwords in one company. One good thing about a workers co-op, I hope, would be attracting people who will get control and profit from what they do, encouraging better staff and that they work harder. Whereas a CIC takes away some of that benefit by keeping profit within another specific community.

  5. I’ve of course not read the legislation, but it surprises me that there’s anything you can’t do with a combination of a trust and a company limited by guarantee.

    What do these CICs add that a company limited by guarantee doesn’t already let you do?

  6. Interesting debate; and a specialist subject of mine (sort of!).

    It’s worth a look at http://europa.eu.int/comm/enterprise/entrepreneurship/coop/index.htm – this sets out the EC’s definitions of the social economy entities as being those which spring from the economic and social needs of their members, and the common characteristics of these. It then sets out different sorts of entities that meet these. Elaborating in a UK context:

    Co-operatives – as you’ve noted, there are two sorts of co-operatives:
    (a)those largely for the benefit of workers/producers e.g. the dairy industry whereby farmers benefit by having a mechanism to share expensive facilities and/or increased bargaining power (think one farmer agreeing a price with Tesco vs. 100 farmers doing the same thing). This is a Co-Op, but not necessarily for the greater good of society – the farmers are probably better off, but it may actually make milk more expensive for the rest of us (although before you all shout at me it may just erode supermarkets profits!)
    (b) those largely for the benefit of consumers (think back to the old Co-Operative Retail Society where you got the “divi” back with your shopping). The shops didn’t exist for profit, per se, although they didn’t pass all of the profits back in divi – they recognised they needed some form of retention of profit for reinvestment. There is a social aspect to this though; frequently they’d open up small supermarkets where a purely profit-driven entity wouldn’t.

    Mutual societies – UK examples include the existing building society movement, the remaining mutual life insurance companies, friendly societies etc. Tend to be in the financial sector but run not to make profits for shareholders; they will make and retain profits in order to have enough capital (e.g. a bank always needs a “buffer” of capital to account for the ebb and flow of funds).

    Associations / foundations – nearest to charitable trusts over here in the UK, but also those Housing Associations constituted as industrial and provident societies.

    The Home Office consultation http://www.homeoffice.gov.uk/docs3/charitiesnotforprofit.eng.pdf is also a useful read in terms of matching legal structure to the aims of the body.

    The legal structures that have evolved in the UK over time don’t entirely fit with anything that isn’t a pure “for profit” motive. For example, charities have always had to decide between being a trust (with the trustees bearing personal risk for their liabilities) or a company (over regulated for simple charities) – the forthcoming Charities Bill will set up a “Charitable Incorporated Organisation” that will allow the relevant protections with less of the legal restrictions that apply to companies but are only really relevant in a “for profit context”.

    Co-operatives are largely constituted as “industrial and provident societites” (IPS), but also as partnerships and companies limited by guarantee. From 2006, there is going to be a new structure, a “European Co-Operative Socitety” which will allow a co-op to be established with members from more than one EC member state. IPSs are a somewhat archaic legal construct – not just co-ops but also housing associations, sports clubs and all sorts! Some of these will now call themselves Community Benefit Socities, but co-ops may want to become CICs instead – but not all workers co-operatives may be community interest. For example, consider John Lewis – owned by a trust on behalf of the workers, yet is it really in the community interest? Perhaps what we need is another simpler UK structure that would work as a simple workers co-op?

  7. Nothing heard from this blog for a very long time, so hope the corporate world has been kind especially in view of current exciting events – not only the election but the ongoing war and the impact of rising oil prices.

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