Organizations pondering taxable subsidiaries to run a social enterprise
by C. Yvonne Chenier, Q.C.
Any organization that has been pondering a taxable subsidiary to run a social enterprise but has been uncertain about the suggestion may want to investigate the new community contribution company that is now allowed in the province of British Columbia. Those organizations that have hesitated because of the business nature of any business corporation that might be running a social enterprise will feel quite comfortable with a corporate name under this new legislation that must include the words, Community Contribution Company. The Articles of Incorporation of this community contribution company must contain a notice as follows. “This company is a community contribution company, and, as such, has purposes beneficial to society. This company is restricted, in accordance with part 2.2 of the Business Corporations Act in its ability to pay dividends and to distribute assets on dissolution or otherwise.”
If that is not enough, the governance restrictions should give potential social entrepreneurs comfort. A CCC must have at least 3 directors and all directors must act with a view to advancing the community purposes. Share structures can be flexible and there can be multiple classes of shares. Dividends are restricted and must be authorized by resolution of the shareholders. Most importantly there is a cap on the amount of the dividends. They cannot exceed 40% of the profit for that year as determined by generally accepted accounting principles and any unused dividend amount for any previous financial year. So it is clear that there will be no excessive profit stripping from the social enterprise, back to shareholders or anyone else who has an interest as a stakeholder in the CCC. Happily, if the shareholder is a registered charity or a qualified donee or some other kind of corporative as defined in the legislation there is no restriction on dividends.
To satisfy the social entrepreneur who thinks that their social enterprise creation might go eventually into the hands of those who lust after profits instead of social good, there is a restriction on the transfer of assets during the time that the CCC is in business and also, upon any dissolution of the CCC, the assets must go to like entities.
So how does one get one of these CCC’s and what is involved? You do not have to be located in the province of British Columbia. Each province in Canada and indeed the federal Canada jurisdiction has its own rules but generally, any corporation that is incorporated in one of the Canadian jurisdictions can register to do business in any other Canadian jurisdiction. This means that if you are in Ontario you have to look at your corporate legislation to see if a corporation incorporated in the province of British Columbia can indeed register and do business in the province of Ontario. It is likely that each and every province will allow a corporation incorporated under the Business Corporations Act of British Columbia to so register. There might be an added layer of legal involvement and ongoing annual expenses for corporate filings.
What is the downside? It depends on how you look at, but there are very onerous reporting requirements to the government of British Columbia. Each CCC must produce an annual report setting out the activities advancing the community purposes, the assets and funds that have been transferred to advance the community purposes and why, the dividends declared, any redemption of shares and any financial assistance. Transfers for fair market value in excess of $10,000 and any transfers to qualified entities must also be reported. Perhaps a little on the nosy side, remuneration of employees of $75,000 or higher must also be disclosed and financial statements must be attached to the report.
For those who are thinking of asking, there are no tax advantages that have yet been discovered to being a CCC. However, for those who want to get down to operating their social enterprise through such a cool sounding new vehicle they should set it up, deal with the regulators, get it registered in the provinces or other Canadian jurisdictions where it needs to operate and reap the dividends.