Asset Lock and Dedication of Profits

A community interest company is, by nature, not-for-profit. This means that the profits of the company must be reinvested into the good work it has set out to do for the community (although directors can be paid for the work they do and shareholders can receive some dividends).

Asset lock

An ‘asset-locked body’ is an organisation which is not-for-profit, i.e. a CIC or charity.

If your CIC is limited by shares, shareholders are allowed to receive dividends but there is a cap on how much they can receive. There are options in the Articles of Association (the company’s governing document) to only allow dividends to be paid to asset-locked bodies or which further limit what individual shareholders can receive. This is sometimes relevant if you are applying for funding, to satisfy the funding body’s requirements on how the money they donate can be used. Similarly, directors can be paid for the work they do for the company, but this must be a reasonable amount for the work they are actually doing, i.e. you can’t be paid just for being a director and can’t be paid premiership footballer’s wages for doing admin!

If you decide to close your CIC down, any remaining assets (e.g. any money left in the bank account) can only be distributed to another asset-locked body (after any debts are paid and shareholders are paid back for their shares). Any assets remaining after a CIC closes cannot be paid to individuals or profit-making businesses, i.e. shareholders cannot just distribute the profits among themselves, as would be possible in a standard limited company.

Dedication of profits

When you set up a CIC, you can nominate another CIC or charity (must be an asset-locked body) to receive any profits or remaining assets. While the majority of CICs do not do this, it is an opportunity to give to a cause which is doing similar work to your CIC.

If you do this, any remaining assets will go to that organisation. If you do not nominate a particular asset-locked body in this clause of the governing document, the CIC Regulator will distribute any remaining assets to other CICs or charities which are doing similar work to yours. All of this is done in consultation between the CIC Regulator and the directors of the CIC.

The default wording for the dedication of profits is:

For the purposes of this article, no Asset Locked Body is specified as a potential recipient of the Company’s assets under paragraph 3. If required, action under this clause will be subject to consultation with the Regulator.

Further information

If you have any questions which are not answered above, feel free to contact us. Alternatively, you might find what you’re looking for the in the guidance produced by the CIC Regulator:

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One Comment

Kerstyn Comley

Please can you clarify – If a CIC distributes some of its profits to shareholders can it still refer to itself as a ‘not-for-profit’?

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