QUESTIONS AND ANSWERS
COMMUNITY CONTRIBUTION COMPANIES (C3s)

How do I register a C3?
The process to register a C3 is similar to registering a typical BC Company. First, you'll have to complete a Name Request through BC Registry Services. After you've received approval for your name, you can file an incorporation application for your CCC through BC Corporate Services on or after July 29, 2013.

How do I convert my existing for-profit business into a C3?
If an existing company would like to convert to a C3, it must first submit a Name Request through BC Registry Services. Subsequently, the company will need to file a "Notice of Alteration from BC Company to Become a CCC", completed through Corporate Online.

Why is the government bringing these amendments into force?
By allowing limited dividend payments to shareholders while mandating that the bulk of the C3’s profits be used for community purposes (or transferred to a qualified entity, such as a charity), the C3 model provides a unique avenue to encourage private investment in social enterprise. Social enterprises are businesses with social objectives whose surpluses are principally reinvested for those purposes. C3 status would signal publicly that a company has a legal obligation to conduct business for social purposes and not purely for private gain. This " "branding" could help attract capital that is currently not accessible to the social enterprise sector.

What do the supporting regulations do?
The basic framework for C3s is set out in amendments to the Business Corporations Act passed in the spring 2012 legislative session. The Community Contribution Company regulation, passed in March 2013, establishes the dividend cap of 40 per cent of annual profits, adds to the list of qualified entities to which a C3 can transfer its assets, and sets out details that must be disclosed in the annual "community contribution" report.

When will the C3 model be available for use?
The BCA amendments establishing C3s, and the supporting regulations setting out the dividend caps and "community contribution" report requirements, were in force effective Monday, July 29, 2013. Name Requests for CCCs became available on July 8, 2013.

How do C3s differ from a typical private company?
The big difference is that C3s are subject to an "asset lock," meaning there’s a strict cap on the dividends that can be paid out to shareholders, as well as a limit on the assets that shareholders are entitled to receive upon dissolution of the company. The bulk of a C3’s profits must go towards the C3’s community purposes (or be transferred to a qualified entity, such as a charity). The other major difference is that C3s are subject to a higher degree of accountability - for example, they must have three directors, instead of just one, and are required to publish an annual “community contribution” report describing their activities. Both of these requirements are intended to help ensure the community purposes of the C3 are being properly fulfilled.

Were there any consultations on these changes?
The regulations were developed in consultation with members of the BC Social Innovation Council as well as expert stakeholders from the social enterprise community. Public consultations held in 2010 supported the idea of a new hybrid corporation like the C3, and the resulting amendments were well-received by the social enterprise community.

Do any other jurisdictions have similar entities?
Yes. C3s are based on a model first introduced in the United Kingdom (UK) in 2005 - CICs ("community interest companies"). In Canada, B.C.’s introduction of legislation in April 2012 was followed by legislation introduced in November 2012 by Nova Scotia to allow for UK-style CICs. In 2009, a House of Commons Standing Committee on Finance recommended the creation of a corporate structure to allow not-for-profit organizations to issue shares.

How are C3s different from United Kingdom and Nova Scotia CICs?
The underlying frameworks are quite similar. In all cases, existing legislation has been used to establish a hybrid type of for-profit company that combines socially beneficial purposes with a restricted ability to distribute profits to shareholders. The major difference is that the UK model involves a government regulator who oversees the formation and conduct of CICs. No regulator is proposed for B.C. Nova Scotia’s regulations are still being developed, but their legislative amendments indicate that they are adopting a model that more closely reflects the UK CIC; for example, Nova Scotia will have a regulator to ensure accountability.

What are some examples of social enterprise?
Social enterprises can exist in many different areas of business and have many different objectives, including health, environmental, cultural or educational services. The social benefit may be direct or indirect. For example, a social enterprise could be established to provide recycling services in a community, the provision of which could be considered a social objective. Alternatively, the recycling could be more of a means to accomplish a related social objective, such as the employment of "street people" in collecting recyclables, or a completely separate objective, such as using the profits to help fund a homeless shelter.

How much money will C3s be required to contribute towards their community purposes each year?
There is no minimum level for annual community contributions - profits can be carried over from one year to the next, provided that distributions to shareholders remain within the prescribed limit.

Can't social enterprise entities already incorporate using existing corporate forms?
Existing legislation governing non-profit and for-profit corporations in B.C. have certain limitations. For example, non-profit societies (including registered charities) cannot issue shares or pay dividends, and therefore find it difficult to attract investment. For-profit companies suffer from the opposite problem – they can pay dividends, but cannot assure social investors that their investments will be used for social purposes. The new C3 model would allow social enterprises to receive equity investment (societies cannot currently do this), with the assurance that the investment will be used for community purposes (companies cannot do this now). It is anticipated that C3s will attract philanthropic investors who still expect some financial return. For such investors, the C3 model offers a simple framework that is legally and commercially recognized.

Will C3s be useful to First Nations/aboriginal groups?
Like any other person or entity, First Nations and aboriginal groups will be able to use the C3 model to incorporate companies to operate their social enterprises. Start-up funding could be obtained by partnering with other shareholders and the First Nation could maintain control as majority shareholder.

As well, First Nations and aboriginal groups will be recognized as "qualified entities" under the C3 regulation. This means that they may receive transfers of dividends or other assets (including outright gifts) from a C3, without the same restrictions that apply to transfers to other transferees.

Are community purposes the same as charitable purposes?
No. Community purposes are potentially broader. Charitable purposes, by legal definition, are limited to the advancement of religion or education, the relief of poverty and other purposes "beneficial to the community." The courts have tended to give a restrictive meaning to the phrase "beneficial to the community," making it difficult to determine what qualifies as appropriate charitable purposes. In order to encourage social innovation, the legislation takes a fairly broad approach and requires only that the purpose is beneficial to society, or a segment of society (i.e. not just the shareholders, directors or other persons related to the C3).

The definition could be narrowed by regulation if it turned out that C3s were adopting inappropriate purposes. For example, C3s could be restricted from having purely political purposes, as in the UK. However, no such regulations are being proposed at this time.

Who will monitor C3s to ensure that they fulfill their community purposes?
Accountability for C3s will be achieved through an annual public report, and by monitoring by the company's shareholders and customers. Once a C3 is established, the "asset lock" will limit distributions to shareholders and ensure that the bulk of the C3 profits can be earmarked for specified community purposes. Unlike the U.K. and Nova Scotia, where a government regulator oversees the formation and conduct of CICs, no regulator is proposed for B.C., as this type of function is inconsistent with the current role of the Corporate Registry and with the nature of an automated incorporation and filing system.

How does the asset lock work?
A C3 can pay dividends to its shareholders, but the dividends are capped. The purpose of the dividend cap is to ensure that assets and profits of a C3 are devoted to its community purposes.

C3s - like any other company - can determine their own dividends. However, regulations cap the amount that can be paid in dividends at 40 per cent of annual profits. This is different from the UK, which caps dividends at 20 per cent of share value, with an overall limit of 35 per cent of annual profits. The less restrictive BC approach is intended to increase investment by allowing for greater incentives. It is not known at this time what approach Nova Scotia will take to the dividend cap.

What types of entities may a C3 transfer its assets to?
A C3 is allowed to transfer its assets without restriction to charities and community service co-operatives. Both of these types of entities are themselves subject to "asset locks" which prevent the transfer of their assets into the hands of members. The C3 regulation will also allow C3s to make transfers to the same entities that registered charities are permitted to transfer to under federal income tax legislation, including First Nations and aboriginal groups.

What happens when a C3 dissolves?
The asset lock also applies when the C3 is dissolved. In a voluntary dissolution, the bulk of the assets of the company (that is, 60 per cent) must be transferred to qualified entities (that is, to charitable organizations or other asset-locked entities).

If a C3, or any other company, is dissolved involuntarily (i.e. for failing to file annual reports), any assets still owned by it would automatically be turned over to the government. These assets would be returned to the company if it were to be restored to the corporate register. A company that is a C3 when it is dissolved would be restored as a C3, so the asset lock would again apply to it.

Will C3s be treated like charities or non-profits under federal tax law?
No. Federal income tax exemptions and the ability to issue tax receipts apply only to non-profits and charities. C3s are profit-making companies, which use their profits for community purposes. As business corporations, C3s will be taxed like other business corporations unless federal tax legislation is changed. In the UK, CICs are not granted charitable tax status, reduced corporate tax rates or any other favourable tax treatment.

How will securities law apply to C3s?
Like any other company, C3s that offer shares to the public would be required to comply with registration and disclosure requirements under the Securities Act unless they fall under one of the various exemptions. These exemptions allow a company to raise capital without issuing a prospectus, but only in certain circumstances, (e.g. offering memorandum exemption, accredited investor exemption, minimum investment exemption, and family, friends and business associates exemption).

If you still have questions about C3s after reading the Commonly Asked Questions, please direct them to: fcsp@gov.bc.ca