22/09/2024
๐ช๐๐๐ง ๐ฌ๐ข๐จ ๐ก๐๐๐ ๐ง๐ข ๐๐๐ข๐จ๐ง ๐ ๐๐ข๐ ๐ ๐จ๐ก๐๐ง๐ฌ ๐๐ข๐ ๐ฃ๐๐ก๐ฌ ๐ฅ๐๐๐๐ฆ๐ง๐๐ฅ๐๐ ๐ฃ๐จ๐ฅ๐ฆ๐จ๐๐ก๐ง ๐ง๐ข ๐ฆ๐๐๐ง๐๐ข๐ก ๐ณ ๐ข๐ ๐ง๐๐ ๐๐ข๐ ๐ฃ๐๐ก๐๐๐ฆ ๐๐๐ง ๐ฎ๐ฌ๐ฌ๐ต ๐ข๐ ๐ฆ๐ข๐๐ข๐ ๐ข๐ก ๐๐ฆ๐๐๐ก๐๐ฆ
We are pleased to provide you a general guidance from Company Haus on what a community company is and why it is more preferred as opposed to an Association registered under the Charitable Act or a Corporative Society registered under the Corporative Societies Act. A Community Company is registered under the ๐๐ผ๐บ๐ฝ๐ฎ๐ป๐ถ๐ฒ๐ ๐๐ฐ๐ ๐ฎ๐ฌ๐ฌ๐ต.
1.1 ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ฎ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐
A community company is a type of company designed to assist community groups in managing what they own and their businesses. The community company is intended to be run as a business, but instead of individual owners benefiting from the success of the business, the community as a whole will benefit. A farmers group, youth groups, womenโs group, a village, tribe or a clan can be defined as a community for purposes of registering a Community Company pursuant to Section 7 of the Companies Act 2009.
1.2 ๐ช๐ต๐ฎ๐ ๐๐ผ๐ ๐ป๐ฒ๐ฒ๐ฑ ๐๐ผ ๐ธ๐ป๐ผ๐ ๐ฎ๐ฏ๐ผ๐๐ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐ถ๐ฒ๐
A community company must have a ๐๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐๐ป๐๐ฒ๐ฟ๐ฒ๐๐, that is, where the community will benefit from the companyโs activities. Community companies cannot make any distributions of funds or pay any dividends to its shareholders. The community must receive the benefit. Community companies cannot make loans to directors or shareholders. There is a โlockโ on the disposal of assets of the community company. Directors must prepare a report on the activities of a community company each financial year and report to all the registered members.
1.3 ๐ช๐ต๐ฎ๐ ๐ฎ๐ฟ๐ฒ ๐๐ต๐ฒ ๐ผ๐ฏ๐ท๐ฒ๐ฐ๐๐ถ๐๐ฒ๐ ๐ผ๐ณ ๐ต๐ฎ๐๐ถ๐ป๐ด ๐๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐๐ผ๐บ๐ฝ๐ฎ๐ป๐
1 To provide communities with a simple and cheap way to incorporate and operate.
2 To provide clear obligations so the way the community company operates is well understood.
3 To protect the communities through regular reporting of activities to the community.
4 To give better certainty for third parties who want to do business with the community companies such as lenders, foreign investors and other businesses.
5 To protect and grow the community assets for current and future members and or generations.
1.4 ๐ง๐ต๐ฒ ๐ฏ๐ฎ๐๐ถ๐ฐ ๐ฟ๐ฒ๐พ๐๐ถ๐ฟ๐ฒ๐บ๐ฒ๐ป๐๐ ๐ณ๐ผ๐ฟ ๐๐ฒ๐๐๐ถ๐ป๐ด ๐๐ฝ ๐ฎ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐
1 The requirements are the same as for incorporating any private company including submitting the names and details of shareholders and directors, and company contact details to the registrar of companies. A set of company rules must also be provided.
2 The principal objective of the company must be that it promotes a community interest, so a statement of the companyโs community interest must be included.
3 The name of the company must have the words โCommunity Company Limitedโ or โCCLโ at the end in all communications. This is important because people who deal with Community Companies must know that they are dealing with a Community Company.
4 The community company must have at least 1 shareholder and 1 director. The director must be a person and cannot be another company.
5 The requirements for operating a private company also apply. If the application is accepted by the Registrar of Companies, then they will be made publicly available in the Register, and the Community Company will receive a Certificate of Incorporation.
1.5 ๐ช๐ต๐ผ ๐๐ต๐ผ๐๐น๐ฑ ๐ฏ๐ฒ ๐ฎ๐ฝ๐ฝ๐ผ๐ถ๐ป๐๐ฒ๐ฑ ๐ฎ๐ ๐๐ต๐ฎ๐ฟ๐ฒ๐ต๐ผ๐น๐ฑ๐ฒ๐ฟ๐ ๐ฎ๐ป๐ฑ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ๐
The people who control the community company are the directors and shareholders. The decision about who will take these roles is made when applying for incorporation of the community company. They can of course be changed as well, as long as the changes follow the companyโs rules. The directors of a community company have the same duties as directors of any other company. They need to be able to understand what is happening in the general life of the company, how the company is performing financially, and how the company is benefitting the community. They have to act honestly, and they have to act in the best interests of the company- not in their own best interests. Directors of a community company have the same responsibilities as those of a private company.
1.6 ๐๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐๐ผ๐บ๐ฝ๐ฎ๐ป๐ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ๐
If you are a director of a company, you must comply with the requirements of the Companies Act 2009. Failure to comply may lead to penalties, disqualification, and may lead to you being sued.
1.7 ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ฎ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ
Directors are responsible for overseeing the management of the company. A director might also be a shareholder, but does not have to be a shareholder. Directors owe duties to the company, to its shareholders, and to others dealing with the company. A director has to be prepared to take on certain responsibilities, and a failure to meet those responsibilities may not only put the company at risk of failure, but it may lead to offences being committed by the director under the Companies Act.
1.8 ๐ช๐ต๐ฎ๐ ๐ฎ๐ฟ๐ฒ ๐๐ต๐ฒ ๐บ๐ฎ๐ถ๐ป ๐ฑ๐๐๐ถ๐ฒ๐ ๐ผ๐ณ ๐ฎ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ
1 To act in good faith -
The most important duty is that a director must act in good faith, meaning, honestly. This means that a director needs to tell the truth to the companyโs owners (shareholders), to third parties (such as a bank who lends the company money), and to the government (such as the Inland Revenue authorities). A director must act in a way which they believe is in the best interests of the company. This means that any decisions a director makes, or advice that a director gives, is in the interest of the company first.
2 To avoid conflicts of interest
Sometimes a director might have the power to make a decision which he or she might benefit from personally, and might be tempted to take advantage of this. This leads to a conflict of interest and it means that a director may not be acting in the best interests of the company anymore. If this happens, then the director needs to take certain steps before being involved with the decision. For example, they may need the shareholders to approve the director taking part in the decision, or they may need to stand aside and not participate in that decision.
3 Duty of care, diligence and skill
Directors must act with care, diligence and skill. For example, directors need to have a general understanding of the financial performance of the company in order to make decisions affecting the company. Decisions a director makes should be carefully considered, and they should ask any relevant questions to the companyโs management before making decisions. If you are a director and you are specialized in a particular area, you would be expected to act in a way that anyone with that specialization would act. For example, if you are a qualified accountant, you would be expected to have a very good understanding of the financial position of the company, more so than a director with limited financial training.
1.9 ๐ช๐ต๐ฎ๐ ๐ฐ๐ฎ๐ป ๐ต๐ฎ๐ฝ๐ฝ๐ฒ๐ป ๐ถ๐ณ ๐ฎ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ ๐ฑ๐ผ๐ฒ๐ ๐ป๐ผ๐ ๐ณ๐๐น๐ณ๐ถ๐น ๐ต๐ถ๐ ๐ผ๐ฟ ๐ต๐ฒ๐ฟ ๐ฑ๐๐๐ถ๐ฒ๐
1 First of all, a director who fails to fulfil her duties may have a negative effect on the success of the company.
2 Second, the Companies Act may disqualify a person from being a director, and may also impose a financial penalty.
3 Third, the company, the shareholders, or a creditor (such as a bank) might also sue the director in some cases. A liquidator may also be able to sue a director in some cases.
1.10 ๐ช๐ต๐ผ ๐ฐ๐ฎ๐ป๐ป๐ผ๐ ๐ฏ๐ฒ ๐ฎ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ
1 A person cannot be a director of a company if he/she is:
2 Under 18 years of age
3 An undischarged bankrupt
4 Prohibited from being a director or promoter of or being concerned or taking part in the management of a company under the Act
5 A person in respect of whom a custody order is in force under section 18 or 41 of the Mental Treatment Act (Cap 103) not eligible because of requirements contained in the companyโs rules.
6 The director must also be a natural person (e.g. a director cannot be another company).
1.11 ๐๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ๐ ๐ผ๐ณ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐ถ๐ฒ๐ ๐ต๐ฎ๐๐ฒ ๐๐ฝ๐ฒ๐ฐ๐ถ๐ฎ๐น ๐ฟ๐ฒ๐๐ฝ๐ผ๐ป๐๐ถ๐ฏ๐ถ๐น๐ถ๐๐ถ๐ฒ๐ ๐ผ๐๐๐น๐ถ๐ป๐ฒ๐ฑ ๐ฏ๐ฟ๐ถ๐ฒ๐ณ๐น๐ ๐ฏ๐ฒ๐น๐ผ๐.
Basically, directors of a community company will be required to do the following:
1 File an annual return with the registrar of companies every year for the community company.
2 Consult with and report on consultations with the community.
3 Report to the registrar in the annual return how they have been paid or what benefits that have received.
4 Keep track of and report in the annual return on the disposal of any assets, and follow the special procedures about assets in community companies.
5 Report in the annual return explaining how the companyโs activities benefited the community.
1.12 ๐ฆ๐ต๐ฎ๐ฟ๐ฒ๐ต๐ผ๐น๐ฑ๐ฒ๐ฟ๐ ๐ผ๐ณ ๐ฎ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐
The shareholders are the owners of the company. However, for a community company this means that they own their shares on behalf of and in trust for the community. They have to act and make decisions in a way which reflects the communityโs interest. Because the company exists to benefit a community, there are some special rules to protect the community.
1.13 ๐ช๐ต๐ฎ๐ ๐ฎ๐ฟ๐ฒ ๐๐ต๐ฒ ๐๐ฝ๐ฒ๐ฐ๐ถ๐ฎ๐น ๐ฟ๐ฒ๐พ๐๐ถ๐ฟ๐ฒ๐บ๐ฒ๐ป๐๐ ๐ผ๐ณ ๐ฎ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐
In addition to the requirement that the community satisfy the community interest test, there are four basic rules of a community company that make them different from regular companies. The reason for these rules is to ensure that the community is protected and actually receives the benefits from the activities of the company. They are:
1 Community companies cannot make any distributions of funds or pay any dividends to its shareholders.
2 Community companies cannot make loans to directors or shareholders.
3 There is a โlockโ on the disposal of assets of the community company.
4 Directors must prepare a report on the activities of a community company each financial year.
1.14 ๐ก๐ผ ๐ฑ๐ถ๐๐๐ฟ๐ถ๐ฏ๐๐๐ถ๐ผ๐ป๐ ๐ผ๐ฟ ๐ฑ๐ถ๐๐ถ๐ฑ๐ฒ๐ป๐ฑ๐ ๐๐ผ ๐๐ต๐ฎ๐ฟ๐ฒ๐ต๐ผ๐น๐ฑ๐ฒ๐ฟ๐
A dividend is a way for a normal company to pass on the profits of the company to its shareholders. For a community company, since the shareholders are people who represent the community, it would not be fair to make a distribution to those individual people. Instead, of distributing the profits this way, the profits are kept within the company, and are used to benefit the community as a whole.
1.15 ๐ก๐ผ ๐น๐ผ๐ฎ๐ป๐ ๐๐ผ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ๐ ๐ผ๐ฟ ๐๐ต๐ฎ๐ฟ๐ฒ๐ต๐ผ๐น๐ฑ๐ฒ๐ฟ๐
Making a loan to a director or a shareholder is another way individuals have been able to take a companyโs capital outside of the company. Often the loan is paid back to the company, but sometimes it is not. This is another situation where someone might personally benefit from the money a company makes, rather than having the community as a whole benefit.
1.16 ๐ง๐ต๐ฒ โ๐น๐ผ๐ฐ๐ธโ ๐ผ๐ป ๐ฑ๐ถ๐๐ฝ๐ผ๐๐ถ๐ป๐ด ๐ฎ๐๐๐ฒ๐๐ ๐ผ๐ณ ๐๐ต๐ฒ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐
(1) Before deciding to register a community company it is very important to understand the asset-lock, because it has long term consequences. Sometimes companies will want to dispose of an asset that it no longer wants or needs. For example, if a tuna company no longer needs a fishing boat, because it has decided that it will only process tuna, rather than fish for it, then it might sell the boat.
(2) If a community company wanted to make this decision, then it should be one that the community agrees on first. The community should also be comfortable that the best possible price was found for the boat. So the Companies Act requires that 75% of the shareholders agree to the sale, and that it is sold for its market price.
(3) All members of the community would also need to be notified before any decision is made to sell an asset. These protections ensure that the community is happy with the decision, and that the full value of the sale stays within the company. The โlockโ only applies to assets which are outside of the ordinary course of business. So if there are assets, such as canned tuna, which are produced every day, then it would not make sense to require the community to be informed, and for shareholders to vote every time a can of tuna was sold.
(4) Community companies may also include stricter rules on the disposal of assets in its rules if the community wishes. For example, it may want to specify particular assets which canโt be sold, or it may want to ensure 100% of the shareholders agree to the sale.
(5) Directors must prepare a report on the activities of a community company each financial year every financial year, the directors of the company must provide a report to the community and to the registrar outlining for that year:
โข Remuneration (such as salaries or other benefits) received by directors
โข How the companyโs activities benefitted the community
โข What consultations were undertaken with the community?
โข What, if any, assets were disposed of by the company.
6 If the directors do not provide this report, then every director will be liable for an offence under the Companies Act and can be fined. The report will be made available to the public through the company registry.
1.17 ๐๐ฟ๐ฒ ๐๐ต๐ฒ๐ฟ๐ฒ ๐ฎ๐ป๐ ๐น๐ถ๐บ๐ถ๐๐ ๐๐ผ ๐ต๐ผ๐ ๐บ๐๐ฐ๐ต ๐ฎ ๐ฑ๐ถ๐ฟ๐ฒ๐ฐ๐๐ผ๐ฟ ๐ฐ๐ฎ๐ป ๐ฏ๐ฒ ๐ฝ๐ฎ๐ถ๐ฑ ๐ถ๐ป ๐ฎ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐
It is up to each community company to decide how much it will pay its directors. The rules of the community company will determine how directors are paid, and would typically require that the shareholders approve of the directorโs remuneration. The directors must also report to the registrar each year how much they are being remunerated, and this information will be publicly available.
1.18 ๐๐ผ๐ฒ๐ ๐ฎ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ป๐ ๐ต๐ฎ๐๐ฒ ๐๐ผ ๐ถ๐ป๐๐ผ๐น๐๐ฒ ๐๐ต๐ฒ ๐ฐ๐ผ๐บ๐บ๐๐ป๐ถ๐๐
Community companies are encouraged to involve their community as much as possible in the activities of the company, and the directors are required to report to the registrar every year on their involvement with the community. This information will be made publicly available.
Should you have any questions, comments or concerns about the matters set out above, please discuss them with us.
๐ฃ๐๐๐๐๐๐ ๐ฃ๐ฅ๐ข๐๐๐ฆ๐ฆ๐๐ข๐ก๐๐ ๐๐๐๐ก๐๐ฌ
