The regulations allowing for the creation of a new category of share capital corporation in British Columbia, known as a "Community Contribution Company” (“C3” or “CCC” for short), were approved on February 27, 2013. This new structure will be available in British Columbia on July 29, 2013.
As previously reported in this Newsletter, C3s are a hybrid social enterprise structure, combining elements of a for-profit share capital company with the social benefit purposes of a traditional not-for-profit entity. In order to qualify as a C3 one or more of the primary purposes of the company must be community purposes. “Community purpose” means a purpose beneficial to society at large or a segment of society that is broader than the group of persons who are related to the C3, and includes, without limitation, a purpose of providing health, social, environmental, cultural, educational or other services.
While C3s will be able to accept equity investment and issue shares like a traditional for-profit company, the regulations restrict the ability of C3s to distribute profits to shareholders. If a C3 dissolves, a maximum of 40% of the C3’s assets can be distributed to its shareholders.The remaining 60% of the C3’s assets must be transferred to a qualified entity, such as a registered charity or a registered Canadian amateur athletic association. Similarly, the total dividends declared by a C3 in a year cannot exceed 40% of the C3’s annual profits. However, this restriction does not apply to classes of shares that can only be issued to registered charities or other“qualified donees” as defined in the Income Tax Act (Canada). These restrictions ensure that the bulk of the profits of a C3 can be used for the C3’s community purposes, and that even on dissolution the assets of a C3 will benefit the community.
C3s are also subject to a higher degree of public accountability than traditional for-profit companies, as they must publish a Community Contribution Report annually. This report must include a description of the C3’s activities that year that benefited society, the remuneration of and position held by each person in the C3 who made more than $75,000, the C3’s annual financial statements, and the amount of dividends declared on all classes of shares.If dividends were declared on a class of shares that can only be issued to registered charities or other qualified donees, then the report must disclose the identity of all the shareholders of those classes of shares. The Community Contribution Report must be kept at the C3’s corporate records office and posted on the C3’s website if it has one.
This new legislation, which will be the first of its kind to come into force in Canada, is designed to attract socially conscious investment and to provide another vehicle for social enterprises to operate. We anticipate that they will be used primarily by socially conscious entrepreneurs, or by charities or non-profit organizations wishing to carry on unrelated businesses.
As discussed in a previous issue of this Newsletter, CRA has stated that because C3s are organized to provide profit to investors, C3s do not qualify as tax exempt non-profit organizations under paragraph 149(1) of the Income Tax Act (Canada), and will be subject to tax as a regular company.While there has been talk of the BC Ministry of Finance introducing a special tax credit for investors in C3s, at the moment this is entirely based on speculation.