Consultation opens on CIC dividend caps

Regulator may ease restrictions on returns that community interest companies can pay investors

The regulator of community interest companies has launched a consultation on whether she should raise caps on the returns CICs are allowed to pay their investors.

Under the legislation that launched the new legal structure for social enterprises in 2005, CICs are permitted to pay dividends to private shareholders at a maximum of five percentage points above the Bank of England base lending rate. They are also restricted to distributing a maximum of 35 per cent of their annual surpluses as dividends.

The ceiling on performance-related interest – also known as quasi-equity – is four percentage points above the base rate.

The legislation permits the CIC regulator, Sara Burgess, to change these rates, subject to the approval of business secretary Peter Mandelson. Burgess said she had heard anecdotally that the caps were limiting the ability of CICs to attract investment, but said she was anxious to build more evidence and told Third Sector she would consult on the issue (Third Sector, 4 February, page 4).

The consultation document includes questions aimed at financiers, non-CICs and social enterprises. It does not suggest new figures for the caps but asks for suggestions about how they might be calculated if the link to the Bank of England rate was broken.

The consultation runs until 19 June.

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