CIC caps unpopular, consultation reveals

Regulator's decision expected in January

The majority of social investors believe that the caps governing what Community Interest Companies can pay their investors are too low, responses to a formal consultation have revealed.

Sara Burgess, the CIC regulator, held a consultation earlier this year on whether the caps were having an adverse effect on CICs' access to finance. The responses to the consultation were released by the regulator last week.

CICs limited by shares are permitted to distribute only up to 35 per cent of their profits as dividends, and the dividend has a percentage of share value per share limited to five points above the Bank of England base rate. The performance-related interest CICs can pay is capped at four percentage points above the base rate.

Eleven of the 12 financiers and investors who responded to the consultation agreed with a statement that the dividend-per-share cap "unduly limited incentives to those that might make an equity investment". However, nine of the 12 thought the 35 per cent aggregated dividend cap offered a reasonable return on investment.

Eight of the 12 also thought the complexity of having two dividend caps put investors off.

Nine of the respondents thought the interest cap was a barrier to attracting finance. Dividend and interest caps of between 10 and 15 per cent were suggested by some respondents.

Half of the 12 non-CIC social enterprises that responded to the consultation also felt the dividend caps were too low and would influence their decision to form a CIC. But significant minorities believed the cap was important to protect CICs' social values. Eight of them thought the interest cap was too low.

Burgess will announce her decision on whether to raise the caps in January so that any changes can come into force in April 2010.

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