This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.

These websites for each chapter update the 3rd edition of The Russell-Cooke Voluntary Sector Legal Handbook by James Sinclair Taylor and the Charity Team at Russell-Cooke Solicitors, edited by Sandy Adirondack (Directory of Social Change, 2009). The websites are not intended as a comprehensive update and should not be treated as such.

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Chapter 59
BORROWING

INCREASED DIVIDEND AND INTEREST CAPS FOR COMMUNITY INTEREST COMPANIES

Added 4/4/10. This information adds to ss.59.6.1 and 59.6.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
One of the main differences between ordinary companies limited by shares and community interest companies (CICs) limited by shares is that CICs have a statutory cap on the dividends they can pay to shareholders. And all CICs, whether limited by shares or by guarantee, have a statutory cap on the interest they can pay on loans they receive where interest is linked to the performance of the CIC.

From 6 April 2010 these caps are increased. Previously the maximum dividend that could be paid was 5% above the Bank of England base rate, and the maximum interest was 4% above base rate. The new caps are no longer linked to base rate.

For shares issued on or after 6 April 2010, the dividend cap now allows a dividend of up to 20% of the paid up value of the shares. The new interest cap applies to agreements for performance-related interest made after 6 April 2010, and is 10% of the average amount of the CIC's debt in the previous 12 months.

The expectation is that these increases will make it easier for CICs to attract investment, by making shares or performance-related loans more attractive to investors and supporters.

The aggregate dividend cap (the total proportion of profits a CIC can distribute as dividends) remains 35%.

Full details are available in chapter 6 of the CIC regulator's guidance at www.bis.gov.uk/cicregulator/guidance.

SANDY ADIRONDACK
Governance and legal training and consultancy
for the voluntary sector
39 Gabriel House, 10 Odessa Street, London SE16 7HQ
Tel 020 7232 0726; fax 020 7237 8117
Email:
Web: www.sandy-a.co.uk