Converting a community benefit society into a community interest company
Can an asset-locked society be converted into a community interest company (CIC)?
If your community benefit society has a statutory asset lock, your options for changing legal form are limited, as the asset lock may not be altered or removed from the rules.
Generally, if an asset-locked society wishes to transform into something else (such as a charitable society or charitable company), it needs to set up a new charitable society or company, and merge with it. This is typically achieved through a statutory transfer of engagements or amalgamation process. It cannot be converted into a non-charitable or non-asset locked company, or into a charitable society.
However, the law does permit an asset-locked community benefit society to convert directly into a community interest company (a CIC). If an asset-locked society wishes to become a company, it can therefore follow the conversion process set out in sections 112 – 114 of the Co-operative and Community Benefit Societies Act 2014.
This process requires a special resolution to be passed by 75% of the society’s members who vote at a general meeting. A second general meeting must also be held between 14 days and one month after the first, where the resolution must be confirmed by over 50% of the members who vote. At least 50% of the society’s total members must vote at the first meeting, which means the society needs a relatively high level of member engagement to get this through. This can be a barrier in some cases, so it’s worth assessing your membership to see what your chances are.
Converting a community benefit society into a company is a well-worn path and recent case law has confirmed the long-held view that a conversion is not a change of legal entity, but merely a change of status. This means that conversion is a simpler process than other forms of society transformation, which require contracts to be assigned or novated to the new entity. It may also have implications for tax / VAT registration, so it's always worth talking to an accountant who understands societies at an early stage.
If you are an asset-locked society looking to transform, conversion into a CIC may well be something to consider.
If you would like to discuss any aspect of this article further, please contact Laura Moss or any of the Charities and Social Economy team on 0113 244 6100.
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The information in this article is necessarily of a general nature. The law stated is correct at the date (stated above) this article was first posted to our website. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.