The Asset Lock is a fundamental feature of CICs. “Asset Lock” is a general term used to cover all the provisions designed to ensure that the assets of the CIC (including any profits or other surpluses generated by its activities) are used for the benefit of the community.
The transfer must satisfy certain requirements. This means that, subject to the CIC meeting its obligations, its assets must either be retained within the CIC to be used for the community purposes for which it was formed, or, if they are transferred out of the CIC, the transfer must satisfy one of the following requirements:
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It is made for full consideration (i.e. at market value), so that the CIC retains the value of the assets transferred.
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It is made to another asset locked body (a CIC or charity, or non-GB based equivalent) which is specified in the CIC's memorandum or articles of association.
- It is made to another asset locked body with the consent of the Regulator or
- It is otherwise made for the benefit of the community.
Provision to this effect, as prescribed in the Regulations, must be included in a CIC's memorandum or articles of association. CICs are permitted to adopt asset lock rules that impose more stringent requirements, provided they also include these basic provisions.
The asset lock will be established in legislation, and will prohibit CICs from distributing their assets or profits to their members, except to the extent permitted where CICs issue equity. The lock will not prevent CICs from using their assets efficiently in pursuit of community benefit; for instance, they will be able to use assets as collateral for finance. The regulator will be responsible for ensuring that the asset lock is maintained, and stakeholders who believe that it is being breached will be able to ask the regulator to take action.
HOW WILL WE KNOW THAT CICs ARE ACTING IN THE PUBLIC INTEREST?
CICs will report annually to an independent regulator on how they are delivering for the community and how they are involving their stakeholders in their activities.
Extracts taken from the Government’s FAQ on CIC
www.cicregulator.gov.uk
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