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Social enterprise and social finance are topics of great interest today to many charitable and non-profit organizations in our communities. In addition, governments at all levels have started to talk about revenue generation by organizations in the charities and non-profit sector, particularly in light of increasing deficits and decreasing revenues. Many of the discussions have been at a high level and are often focused on changes we need in the regulatory environment to facilitate these social enterprise or social finance activities.
One province has now introduced legislation which will bring some of these discussions closer to a reality. The Legislative Assembly in British Columbia introduced Bill 23 — 2012 Finance Statutes Amendment Act, 2012 which proposes changes to the Business Corporations Act of British Columbia (the “BCBCA”). These changes will result in a new category of share capital corporation known as a “Community Contribution Company” or “CCC”. At the time of writing, the Bill has not yet received 2nd reading in the BC Legislature.
The proposal introduces the new Part 2.2 of the BCBCA, entitled “Community Contribution Companies”. It defines a CCC as follows:
A company is a community contribution company if its notice of articles contains the following statement:
“This company is a community contribution company, and, as such, has purposes beneficial to society. This company is restricted in accordance with Part 2.2 of the Business Corporations Act, in its ability to pay dividends and to distribute its assets on dissolution or otherwise.”
“Community purpose” is defined for the purposes of Part 2.2 of the BCBCA to mean:
a purpose beneficial to:
a) society at large, or
b) a segment of society that is broader than the group of persons who are related to the community contribution company,
and includes, without limitation, a purpose of providing health, social, environmental, cultural, education or other services, but does not include any prescribed purpose.
Many readers will have heard of the “community interest corporations”, or CICs, which were introduced a few years ago in the United Kingdom, as well as low-profit limited liability companies, otherwise known as L3Cs, which have been introduced in a number of states in the United States. The community contribution company is BC’s suggestion for a similar entity. The new proposals include an asset lock on the assets of the CCC and will only permit limited return of assets to shareholders. The provisions also suggest that there will be limits on the dividends that could be paid to investors. It is unclear whether the proposals will require a cap on dividends paid or whether the restrictions will act as a floor. We know that both models were being considered.
Much of the detail surrounding the rules, and what investments in a community contribution company will look like, are left to the Regulations under the BCBCA. To date, none of the Regulations have been released, or perhaps even drafted.
The one thing the new rules do not do is provide any type of special tax benefit to the community contribution company. If tax benefits are to accrue to the CCC’s, they will need to be enacted, either under the provincial taxation statute or through the Income Tax Act (Canada). There has been talk of the BC Ministry of Finance introducing a special tax credit for investors in CCCs, but all is speculation at the moment.
There is no doubt that there is great interest from all levels of government and in the sector itself in establishing greater flexibility from a regulatory perspective around revenue generation. Whether or not the CCC will effective in doing so is a question that will only be answered once the Act is enacted and the Regulations are published in detail.
Time will tell whether or not these new corporate entities will have a significant role in the activities in the sector. The Miller Thomson Charities and Not-for-Profit Newsletter will keep you up to date on the new legislation, the Regulations under it, and any other proposals for change in this area.