On May 14, 2012, Bill 23, Finance Statutes Amendment Act, 2012, was passed into law in British Columbia and is expected to come into force on July 29, 2013 (the “Act”). Bill 23 amends the Business Corporations Act (British Columbia) (the “BCBCA”) to allow for a new hybrid legal structure for social enterprise, called Community Contribution Companies (“CCCs” or “C3s”).
Many of the details surrounding C3s were expected to be set out in the regulations. On February 28, 2013, the much anticipated regulations were released and will come into force on the same day as Bill 23 (the “Regulations”).
C3s emerged to respond to the demand for socially focused investment options. C3s are a hybrid because they combine aspects of a traditional for-profit corporation and a not-for-profit entity. C3s will be able to carry on business for the dual purpose of both earning profits for shareholders and pursuing a social purpose for the community.
British Columbia is the first province in Canada to create a legal structure for social enterprise. The United Kingdom first introduced this hybrid business structure in 2005 with the establishment of Community Interest Corporations. The United States followed by introducing a similar type of company called Low-Profit Limited Liability Companies.
The major characteristics and implications of incorporating as a C3 are as follows:
- Community Purpose. A C3 must have one or more community purposes which are beneficial to society at large or a segment of society that is broader than the group of persons who are related to the C3. Community purposes may include providing health, social, environmental, cultural, educational or other services.
- Name. A C3 must have the words “Community Contribution Company” or the abbreviation “CCC” as part of its name. The use of the word “Community Contribution Company” or the abbreviation “CCC” by an entity that is not a C3 is restricted unless specifically authorized by the Act or the Regulations.
- Directors. A C3 must have at least 3 directors.
- Restrictions on Transfer of Assets. There are restrictions on the transfer of assets or money by a C3. A C3 may only transfer its assets:
- for fair market value;
- to a “qualified entity”, such as a registered charity or “qualified donee” as defined in the Income Tax Act (Canada);
- in furtherance of the C3’s community purposes;
- for transfers specifically contemplated by Act or the Regulations, such as dividends, redemptions or distributions on dissolution; or
- for transfers authorized by the Regulations.
In addition, except as specifically permitted by the Act or by the Regulations, no part of the money or other assets of the C3 can be transferred during the C3’s existence or on its dissolution to a person related to the C3.
- Restrictions on providing Financial Assistance. There are also restrictions on when a C3 may provide financial assistance. A C3 may not transfer any of its money or other assets by way of financial assistance:
- to persons who are related to the C3, except in certain limited circumstances; or
- to any other person unless the C3 is acting in furtherance of its purposes.
- Restrictions on Ability to Distribute Profits.
A C3 cannot declare a dividend that is greater than 40% of the profits of the C3 in a financial year and any unused dividend amounts for previous financial years. This restriction, however, does not apply to shares held by “qualified entities”, which include “qualified donees” and registered charities as defined in the Income Tax Act (Canada), and community service cooperatives as defined in the Cooperative Association Act.
Upon dissolution 60% of the distributable assets of the C3 must be transferred to a “qualified entity”, such as “qualified donees” or registered charities as defined under the Income Tax Act (Canada).
- Public Accountability. A C3 will be subject to a greater degree of public accountability. Each C3 must produce financial statements and an annual community contribution report must be prepared and posted on a publicly accessible website of the C3.
The Regulations list the information that must be disclosed in the community contribution report. For example, the community contribution report must disclose:
- the remuneration and position held of each person whose remuneration during that year was at least $75,000;
- the financial statements for the C3 for that year;
- the aggregate amount of dividends declared to “qualified entities” in that year and the identity of all “qualified entities” that hold or beneficially own shares; and
- the total amount of dividends declared to shareholders that are not “qualified entities”.
Although at the moment there are no federal or provincial tax benefits given to C3s, we expect that C3s will still be an attractive vehicle for those individuals who wish to carry on business while still pursuing socially responsible purposes.