Question 23: Are there any other activities of British Waterways that would be best placed in the CIC?
Community Interest Companies (CICS) are limited companies, with special additional features, created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage. This is achieved by a “community interest test” and “asset lock”, which ensure that the CIC is established for community purposes and the assets and profits are dedicated to these purposes.[1]
The consultation document outlines the reason for establishing a CIC as a 100% owned vehicle of NWC to undertake all trading activities. The reason for this is stated that “as a general rule [charities] cannot engage in trading activity’. The document goes on to say that the assets of NWC are likely to be held by the charity and their commercial management contracted to the CIC. It goes on to state that NWC will hold all director appointment rights and that some directors may be remunerated for their work.
The Waterways Project notes that the consultations commentary wording may be misleading. Charities are able to undertake trading as long as it “contribute[s] directly to the furtherance of their charitable objects”.[2] This is often called primary purpose trading. So, for much of the activity that NWC will be undertaking there appears to be no need to transfer trading activity to the proposed CIC. Maintaining all primary purpose trading activity within the new charity would maximise tax benefits to NWC and ensure a clear divide between primary purpose and commercial purpose activity. If NWC also configured its objects to continually strive to expand and maximise primary purpose trading, by splitting trading activity between the charity and the CIC, it would establish a framework which aligned trading with its objects and therefore over time increased alignment between its practice and principles. The holding of primary purpose trading within NWC would also improve transparency and accountability of these activities within the new group structure.
The Waterways Project also notes the intention for some CIC directors to be remunerated. In the spirit of UK charity law we believe the separation of executive and non-executive function makes for stronger governance and accountability arrangements and would suggest directors act as trustees within the CIC while appointing relevant commercial talent into executive positions.
Our response to Question 23:
Charities are able to undertake primary purpose trading. To ensure clear linkage between relevant trading activity and the vision and objects of the charity The Waterways Project strongly advocates for all primary purpose trading activity to be held within NWC rather than transferred to the new CIC. Commercial trading activity that is not of a primary purpose nature should be transferred over to a new body. This new body could be a CIC or it could equally be a company limited by guarantee (CLG) and established as a charity (in its articles) but not registered at the charity commission. Where equity financing is required subsidiary companies limited by share (CLS) may be established for this purpose. There may be benefits to this latter approach as a CLG could be incorporated to have no dividend distributed while the CLS would distribute dividends (capped or not) on an activity/investment by activity/investment basis.
The preserving of primary purpose trading within the charity would maximise tax benefits to NWC and ensure a clear divide between primary purpose and commercial purpose activity. If NWC also configured its objects to continually strive to expand and maximise primary purpose trading, by splitting trading activity between the charity and the CIC, it would establish a framework which aligned trading with its objects and therefore over time increased alignment between its practice and principles. The holding of primary purpose trading within NWC would also improve transparency and accountability of these activities within the new group structure.
The Waterways Project also notes the intention for some CIC directors to be remunerated. In the spirit of UK charity law we believe the separation of executive and non-executive function makes for stronger governance and accountability arrangements and would suggest directors act as trustees within the CIC while appointing relevant commercial talent into executive positions.
[1] http://www.cicregulator.gov.uk/
[2] http://www.charity-commission.gov.uk/publications/cc35c.aspx
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