Canada Creates a New Hybrid Legal Form for Social Enterprise
March 26th 2013
The government of British Columbia recently approved regulations providing for the creation of “community contribution companies” (CCCs), a new corporate structure designed to bridge the gap between for-profit businesses and non-profit enterprises. CCC’s are really designed for companies that adopt a hybrid business model to benefit the community and make money at the same time. The regulations take effect on July 29, 2013.
Other than its unfortunate name — some will undoubtedly call it the “C3” in homage to the US tax designation for charities — the CCC is impressive. A CCC can accept equity investment, issue shares, and pay shareholder dividends, options that are not currently available to non-profits in Canada and the U.S. But a CCC can only pay out 40 per cent of its profits as dividends to shareholders. The balance has to be used to carry out the CCC’s “designated community purposes.”
CCCs are required to publish an annual “community contribution report” providing details of their social spending, community activities and dividend payments. On dissolution, the CCC is only allowed to distribute 40 per cent of its assets to shareholders. The remaining 60 per cent has to be distributed to charitable organizations and/or other asset-locked entities.
Really the only thing missing from this hybrid is the ability to accept tax-deductible contributions directly. Companies that want to use philanthropic dollars in their enterprise – or alongside it – have to use a fiscal sponsor or a donor advised fund.
It will be interesting to see how many CCC’s are formed on the first day. In other places that have adopted hybrid business forms, there has been a rush to get a group of companies to file together. That has become a barometer for how successful the hybrid will eventually be.
Read the British Columbia Governement’s online announcement. Legislative Changes Encourage Investment in Social Capital