Can an asset-locked society be converted into a CIC?
If your community benefit society has a statutory asset lock, your options for changing legal form are limited, as the asset lock may not be altered or removed from the rules.
Generally, if an asset-locked society wishes to transform into something else (such as a charitable society or charitable company), it needs to set up a new charitable society or company, and merge with it. This is typically achieved through a statutory transfer of engagements or amalgamation process. It cannot be converted into a non-charitable or non-asset locked company, or into a charitable society.
However, the law does permit an asset-locked community benefit society to convert directly into a community interest company (a CIC). If an asset-locked society wishes to become a company, it can therefore follow the conversion process set out in sections 112 – 114 of the Co-operative and Community Benefit Societies Act 2014.
This process requires a special resolution to be passed by 75% of the society's members who vote at a general meeting. A second general meeting must also be held between 14 days and one month after the first, where the resolution must be confirmed by over 50% of the members who vote. At least 50% of the society's total members must vote at the first meeting, which means the society needs a relatively high level of member engagement to get this through. This can be a barrier in some cases, so it's worth assessing your membership to see what your chances are.
Converting a community benefit society into a company is a well-worn path and recent case law has confirmed the long-held view that a conversion is not a change of legal entity, but merely a change of status. This means that conversion is a simpler process than other forms of society transformation, which require contracts to be assigned or novated to the new entity. It may also have implications for tax / VAT registration, so it's always worth talking to an accountant who understands societies at an early stage.
If you are an asset-locked society looking to transform, conversion into a CIC may well be something to consider.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
