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Community Right to Bid – Should we set up a charity or a CIC?

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This topic contains 9 replies, has 7 voices, and was last updated by Profile photo of daveboyle daveboyle 2 years, 1 month ago.

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  • #11617
    Profile photo of The Green Girl
    The Green Girl
    Participant

    Hi there,

    I came across your website and wondered if anyone in the forum would be able to advise us of the best way forward with our situation.

    We have recently managed to get a parcel of land which has been used by members of our community for over 50 years as a recreational space, registered as an Asset of Community Value. The owners of the land are intending to sell it and we have managed to raise enough donation pledges to be able to buy it ourselves as a community group. The idea is that we will purchase it and then apply for Village Green status and then hand the parcel of land over to the local council so it is under their ownership for insurance and maintenance purposes.

    Reading through the Community Right to Bid documentation, it indicates that we have 6 weeks in which to set ourselves up as either a charity or a CIC.

    As it will be for a very short term – i.e. just long enough to collect the donation money and complete the purchase of the land – could anyone advise us which would be better for us to setup – the charity or the CIC?

    We have very little experience of this kind of thing – so any advice would be much appreciated!

    Many thanks!

    #11618
    Profile photo of Mick Owen
    Mick Owen
    Participant

    The only useful thing I can offer is that setting up a CIC is a very quick job. The CIC Regulator has a helpful website with template documents. Best of luck, sounds exciting.

    #11619
    Profile photo of nataliafernandez
    nataliafernandez
    Participant

    Hello Green Girl

    There are some important things to know with these options. If you choose to be a CIC you lock your assets which is supposedly it’s advantage – but consider this in mine with what you want the organsation for.
    A Charity might be set up as efficiently with the right people in place. The good thing about a Charity option is that it can transformed into a CIC if you choose to do so at a later date – I believe the same cannot be said if you want to change a CIC to a charity.

    I will attach a doc that I found online to help differentiate. It is dated 2013 apologies for this but it is one of the best descriptions I have found.

    Good luck it sounds like a great venture!

    KInd regards
    Natalia

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    #11621
    Profile photo of daveboyle
    daveboyle
    Participant

    Hi there – you need to act carefully at this stage. There’s several issues to think through.

    If you want to be eligible to lodge an intention to bid under the Localism Act, you should avoid a charity – it will take anything up to 6 weeks to be registered as such, well after the interim moratorium has expired.

    So, that leaves an IPS, a company limited by guarantee, or a CIC.

    Second, you mention that you’d be raising funds to buy the land – here’s where a second problem comes in. If you wish to raise funds, you can either do this by donations from local people, or from selling ‘ownership’ (AKA equity). The average donation is £50, so you’ll need to think about how many people in your community are there you care enough to give you £50 and see how much that translates to as a total sum. Is it the same or more than the sum the landowner will want?

    Chances are, it’ll either be less than that, giving you a shortfall, or need you to get nearly everyone to donate; that’s possible, but is an enormous undertaking.

    The other route is to issue community shares, where instead of donating money, they invest it and get ownership. The shares are one-member one vote, and can’t be sold onto anyone else, and the legal entity can be asset-locked (or become a charity itself at a later date). The advantage here is that the average per person is more like £400 which means you’ll need 8 times fewer people to contribute.

    (there more on why there’s such a differences between them in terms of amounts people contribute here )

    So, in order to set up a community benefit society, you’ll need to contact an organisation like the Plunkett Foundation or Co-ops UK. Even with a following wind, you want to allow 4 weeks, and given the interim moratorium only lasts 6 weeks, the quickest safest route is to register a bog-standard Company Limited by Guarantee in the short term.

    A CLG can later convert into a community benefit society, or become a charity, or become a CIC. It takes a day to register, and meets the tests of a Community Interest Group required by the Localism Act to trigger the moratorium.

    If you need to raise significant sums to buy the land, have a big look at Community Shares. If not, choose either a charity or a CIC. You can make a CIC into a charity at a later date, but not the other way around; a charity has a greater level of asset protection than a CIC, so whilst you can go from a lower level (CIC) of asset protection to a higher level (Charity), you can’t go the other way.

    Happy to have a chat – there’s a comment form on our website, so get in touch if you want to talk through any of this.

    • This reply was modified 2 years, 1 month ago by Profile photo of daveboyle daveboyle.
    #11623
    Profile photo of Stephen
    Stephen
    Participant

    Hi,

    For such a short term holding there is a lot of bureaucracy and expenses involved in setting up a CIC or Charity/LTD co… etc and then winding them up again. That said a CIC is the probably the quickest, the charity commission would take much longer. There is a lot of Land Registry bureaucracy too these days with ID checks on directors, cost of a valuation for fees, then there is business bank a account to open…. laborious these days. But there are other options…

    Clearly you can’t hold the land as an unincorporated organisation but could some other local incorporated community body hold it in trust for you? 2-3 individuals could also hold it in trust. If it is to be used for sports there are sports association that would hold the land for you.

    Think about a trust. It could be simpler for a short-term project like this.

    One other point. Are you sure the council will take it on? Many are into asset transfers these days looking to give things to the community to run, maintain and insure.

    Maybe talk to these folk for advice http://www.fieldsintrust.org/

    look into community land trusts too. http://www.communitylandtrusts.org.uk/ They are not just about building houses, the legal structure might suit you better if you do go down that road.

    Good Luck

    #11624
    Profile photo of Stephen
    Stephen
    Participant

    Hello.

    There’s a lot of good advice in this thread already in terms of the pros and cons of various legal models for not for profit community groups, so I won’t duplicate what’s already been said, other than to say that the shortest route isn’t necessarily the best one. But whatever road you go down, read up beforehand and get some advice from someone qualified in the field, including the implications of buying/selling for tax purposes.

    It seems to me that you are in a slightly unusual position in that you sound very confident of raising the purchase price, and that you intend to ‘hand over’ the land very shortly afterwards to a ‘local council’. I presume you are referring to a town or parish council? If so, then consider their role in a bit more detail. Under the Localism Act they are an eligible body to trigger the full moratorium by making a bid to purchase themselves. So, if speed and simplicity are your prime objectives, you don’t need to set up anything new. But do think ahead in relation to whether this offers all the other safeguards you are looking for long term.

    Happy to continue the conversation anytime at: http://www.mycommunity.org.uk

    #11625
    Profile photo of Chris
    Chris
    Participant

    **Stephen**

    Hi Stephen Et Al.

    I agree with all of Stephen’s comments regarding CICs. Its worth pointing out that parish councils are using the community rights across England to engage in the asset transfer agenda and we want to see more getting involved in the Assets of Community Value right.

    Parishes can be involved and active setting up charitable trusts to manage certain assets (e.g. cinemas) they would not otherwise have the legal power to manage – Locality are really the best people to get advice from in the first instance (Green Girl).

    Chris (NALC)

    #11630
    Profile photo of The Green Girl
    The Green Girl
    Participant

    Thank you all so much for your speedy and comprehensive information – wow, I wasn’t expecting that!!

    To respond to few of the points raised (but not all as I haven’t really been able to digest it all yet!!):

    The local council are happy to take the land on and maintain it/insure it so that it can continue to be used by the community as an amenity area. We have already received “pledges” of donations from members of the local community and have almost reached our target figure. As far as we are aware, any CIC or charity that we set up would be purely to adhere to the terms of the Community Right to Bid framework and have a bank account associated with it that would allow people to complete their donation in order that we can then proceed with the purchase of the land.

    Once the land has been purchased and handed over to the local council, there would be no further need for the CIC to exist and we would then wind it up (if that’s the right terminology) – so it is a very short-term requirement, but one that we believe is necessary as part of the CRtB mentioned above. We had looked into people being shareholders – but that sounded quite complicated as well as having ongoing ramifications (people moving away, reselling shares, etc). And as the local council have offered to take it on – we decided that was the simplest way to go!

    We are not sure whether the Council could buy it on our behalf (using the money we have collected) – or whether this would be considered to be outside of the terms of the CRtB as the only party who can purchase the land within the 6 month moratorium is “us” as the nominating group.

    We have been advised that there would be covenants placed on the land in order to protect it from any potential building development in the future (although we are also pursuing Village Green status on the plot – but that’s a whole different issue!!).

    Thanks once again for all your support – and so fast too!

    Kind regards

    Green Girl

    #11647
    Profile photo of The Green Girl
    The Green Girl
    Participant

    @daveboyle – Thank you for this information.
    Is there anyway I could contact you directly to discuss one of the points you have raised please.
    Sorry could not find the comments form but would be interested to discuss further either directly via email.
    Thank you in advance.

    #11650
    Profile photo of daveboyle
    daveboyle
    Participant

    Hi there – best off emailing me by clicking this link or here’s the contact form.

    • This reply was modified 2 years, 1 month ago by Profile photo of daveboyle daveboyle.
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