Clause 24 - Community interest companies
Companies (Audit, Investigations and Community Enterprise) Bill [Lords]
12:00 pm
Mr Brian Cotter (Shadow Minister (Trade & Industry), Trade & Industry; Weston-Super-Mare, Liberal Democrat)
I am pleased to move the amendment on behalf of my hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Mr. Moore) and myself. We are talking about an important subject, to which we have already referred: community interest companies. My colleagues and I are engaged on the issue, and are supportive of community interest companies, but I wanted to raise a particular point. The amendments would remove the provision that states that charities cannot become community interest companies and would instead allow them to choose that legal form if they so wished.
As my noble Friend Lord Phillips of Sudbury noted in the House of Lords, clause 24 states:
''A community interest company established for charitable purposes is to be treated as not being . . . a charity''.
As Lord Phillips pointed out, that is something of a paradox, because a body established for exclusively charitable purposes and operating exclusively as a charity is prevented from registering as a community interest company.
The concept of a charity has always been defined by an organisation's activity and purpose rather than its form. That fundamental point is enshrined in charity law and has in the past given charities the necessary flexibility to adopt the most appropriate form to perform their work. Preventing a charity from choosing to become a community interest company will only create confusion in the public mind about the differences between each structure.
The Government claimed in the other place that they would not accept such an amendment, on the grounds that it would be of little use to charities, which would not wish to use the new form as it would require them to comply with additional regulatory requirements. None the less, it should be for a charity to choose which legal form is most appropriate for the execution of its work. It should not be for the Government to limit the decisions of individual charities, which each have different needs and aspirations. As Lord Phillips said in the other place, he consulted two Law Lords, Lord Browne-Wilkinson and Lord Hoffman, on the issue. Both have extensive experience in dealing with charities, and both shared his concerns.
The Government have said that a new legal form for charities will be created: the charitable incorporated company. Under the draft Charities Bill, the Home Office believe that that will
''avoid dual regulation between charity and company law and provide an alternative to the company limited by guarantee model currently used by many charities.''
None the less, the proposal is likely to be utilised by smaller charities that want to operate within the simple legal framework that the charitable incorporated company will provide. Concern has therefore been expressed that the new type of legal form will be of little use to larger, high-profile charities, which may want to use the community interest company form.
It has also been said that grant-giving charities will find it easier if community interest companies can register as charities, as they will find it easier to make
grants to them—a point that I believe has been raised with Ministers by the Community Development Finance Association.
The Government have claimed that the community interest company form is not designed to be used by charities, but, as was pointed out in the other place, virtually no other legal form is specifically designed for charities. The company limited by guarantee and the company limited by share are both forms utilised by charities, but there is no confusion. For example, a company limited by guarantee that is a charity is still a company limited by guarantee. Why should the same not apply to charities that wish to use the community interest company form?
Allowing charities to become CICs will allow them the maximum flexibility to choose whichever form is most suitable for their work, and will thus help to enhance the value of the new community interest company structure. That will in turn boost the social enterprise sector, as there is a lot of commonality between CICs and charitable work. I commend the amendment to the Committee.