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Social Enterprise - British Columbia Style

A social enterprise (or community) company is a hybrid corporation that has become well-established in the UK and several US states. The corporation is intended to achieve some public (but non-charitable) benefit (for example, environmental sustainability) and, at the same time, be profit-making and generate a return for investors, thereby encouraging the formation of capital by the corporation.

Canada is a late adopter of social enterprise companies. In Canada, social enterprise companies can only be formed in two jurisdictions: British Columbia (which calls them community contribution companies or CCCs); and Nova Scotia (which calls them community interest companies or CICs). This article focuses on British Columbia CCCs.

British Columbia has allowed the formation of CCCs since 2013. In British Columbia, a CCC is incorporated under Part 2.2 of the British Columbia Corporations Act or, alternatively, an existing company is converted into a CCC by amending its notice of articles, which requires the unanimous approval of its shareholders.

So, what is the advantage of a CCC? It turns out that there are none, apart from the possibility that individual investors may be feel they are investing virtuously. A CCC is subject to several regulatory requirements, but it receives nothing from the corporate law regime in exchange.

To start with, a CCC is taxed the same as any other taxable Canadian corporation under the Income Tax Act.

Nevertheless, a CCC is subject to various types of regulation, including the following:

Restrictions on Transferring Assets Outside the Ordinary Course of Business: A CCC may only transfer its money or assets outside the ordinary course of business if the transfer (broadly defined to include a sale, lease, assignment, gift, charge or agreement to make any transfer) is for a value that is equal to fair market value ("FMV") or is:

● to a qualified entity, which includes a registered charity or other qualified donee within the meaning of the Income Tax Act, a community services cooperative as defined in the British Columbia Cooperative Association Act or a society other than a member-funded society as defined in the British Columbia Societies Act;

● to further the company's purposes; or

● permitted by way of dividend, redemption, purchase of shares, other reductions of capital or dissolution.

Restrictions on Payment of Dividends: A CCC is restricted in the payment of dividends. In any financial year, the amount of all dividends declared on its shares may not exceed 40% of the company's profit for that year and any unused cumulative dividend amount carried over from previous financial years. This restriction on dividends does not apply to a class or series of shares held by qualified entities as long as the articles of the company stipulate that only qualified entities can be registered or beneficial shareholders of that class or series of shares.

Dissolution Distributions: Before a CCC is dissolved, it must distribute at least 60% of its residual assets to one or more qualified entities named in the company's articles or specified by resolution of the shareholders.

Restrictions on the Redemption, Repurchase or Reduction of Share Capital: A CCC may redeem or purchase its own shares only if the amount to be paid by the company does not exceed the fair value of the shares. Therefore, there can be no premium price paid for the shares.

Restrictions on Financial Assistance: A CCC cannot transfer (which again is broadly defined):

● money to any person unless it is to further the company's community purposes; or

● money or assets to a related person (which includes directors, officers, shareholders and various categories of relatives) by way of financial assistance unless the persons are qualified entities.

Interest Rate Cap: A CCC cannot pay a rate of interest that is related to the company's profits on a debenture or other debt.

Minimum Number of Directors: A CCC must have at least three directors. The directors cannot transfer the powers of a director to another person.

Publication of Mandatory Annual Report: A CCC must publish a community contribution report each year. The report must be published on or before the day that the company holds its annual meeting. The report must include various information for its most recently completed financial year, including:

● a fair and accurate description of how the company's activities during that financial year benefitted society;

● the assets, including money, that were transferred to further the company's purposes and the purpose of those transfers; and

● the amounts of dividends declared, redemptions, purchases of shares or other reductions of capital.

Mandatory Name Element: The corporate name of a CCC include the words "Community Contribution Company" or the abbreviation "CCC".

In general, the British Columbia CCC regime runs counter to the enabling function of corporate law, which seeks to facilitate private ordering and avoid pointless regulatory requirements.

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