Community Interest Companies (CICs) will be able to pay dividends of up to 20 per cent of each share under changes outlined by the CIC regulator.
The cap has been raised following last year’s consultation on the dividend and interest caps, in which respondents expressed concern that CICs were unable to attract outside investment due to the limits imposed on paying dividends to shareholders.
Previously the cap was set at 5 percentage points above the Bank of England base rate, which had made CICs uncompetitive in the face of low interest rates, while this system was also seen as too complicated.
Furthermore, the loan interest cap, which governs performance related interest payable, has been raised to 10 per cent of the average amount of the CIC's debt, having previously been set at four percentage points above the base rate.
The overall cap for the distribution of profit remains at 35 per cent. The changes will come into force from 6 April.
Positive response
John Mulkerrin (pictured), co-founder of the CIC Association and member of the Regulator’s technical panel, said: “The response from members so far has been positive, and we think it has definitely opened up the range and type of investors who may now be willing to invest.”
Writing in his blog, he added: “In my opinion 20 per cent isn’t too much but is generous; the shares will still be illiquid so rampant speculation isn’t about kick the door in, but it’s a positive step.
“This will attract a whole new range of potential funding, and even though it’s a slight stretch of the social investors imagination we can now say there is potential for a return of capital in 5 years.”
He added that the performance loan cap is “interesting”, as there haven’t been too many examples to date but he expects that to change “pretty quickly”.
He also said that the regulator has noted concerns that the changes will have a detrimental effect on grant funding and was therefore hoping for some centralised work to combat this.
However, he argued: “The current situation is pretty erratic already and in many ways I think this will make it easier for grant-making bodies to understand the difference between CIC limited by share and CIC limited by guarantee.”
