Why Your CIC Can't Raise £50,000 Without Spending £50,000 First

Here’s a number that should make you angry. The cost of a fully authorised share issue for a small CIC is between £20,000 and £50,000. Most CICs are trying to raise between £10,000 and £100,000. Do the maths.

This isn’t a problem that affects big social enterprises with balance sheets and professional advisors. They can absorb those costs. It’s a problem that kills the small, community-rooted projects — the village hall takeover, the community transport scheme, the local renewable energy co-op — that should be the heart of the CIC movement. And it’s a problem we can fix.

The root cause is the Financial Services and Markets Act 2000. FSMA sets out the legal and regulatory requirements for offering securities — including shares and bonds — to the public. The requirements are reasonable for a company trying to raise millions from the general public. They’re absurd for a community group trying to raise £30,000 from local residents who already know and trust them.

Community share issues are the classic example. Over the last three years, Industrial and Provident Societies have used a marketing exemption in the FSMA 2000 (Financial Promotion) Order 2005 to launch over 100 community share offers, raising a total of £16 million. The exemption works. It’s proportionate. It doesn’t open the door to abuse because the amounts are small and the investors are local.

But CICs don’t qualify for that exemption. The Community Shares Unit — the government-backed body that’s supposed to support community share issues — currently advises people against using the CIC structure and only offers its service for co-operative shares. So if you’re a CIC trying to raise capital from your community, you’re stuck. You either spend tens of thousands on full authorisation, or you give up.

I’ve been working on a proposal with Lord Wilf Stevenson to fix this. The idea is simple: extend the IPS exemption in the Financial Promotion Order to CICs. Set sensible limits — a £200,000 aggregate investment cap over three years, a £20,000 maximum per individual investor — and let CICs raise the community capital they need without being crushed by compliance costs.

The guiding principles are straightforward. It has to be effective — it has to actually work for the organisations that need it. It has to be affordable — the cost of compliance can’t exceed the amount being raised. It has to be sustainable — a one-off fix isn’t enough. And it has to be simple enough that a community group can navigate it without expensive legal advice.

The government’s policy direction is progressive on this. The social enterprise tax relief consultation is underway. Big Society Capital is up and running. The Right to Bid and Right to Buy are creating new opportunities for community asset ownership. But none of that matters if the basic regulatory plumbing doesn’t work.

This isn’t a radical proposal. It doesn’t require new legislation — just an amendment to an existing statutory instrument. It doesn’t cost the Treasury anything. It doesn’t create regulatory gaps, because the limits are low enough to prevent abuse. All it does is remove a barrier that shouldn’t exist in the first place.

If you’re a CIC that’s ever tried to raise money from your community and hit the FSMA wall, you know exactly what I’m talking about. Let’s get this fixed.