A guide to community companies

The 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. The community company can in some cases be considered by existing groups as an alternative to charitable trusts and cooperatives.

Quick Summary

IF YOU LEARN NOTHING ELSE, THIS IS WHAT YOU NEED TO KNOW ABOUT COMMUNITY COMPANIES:

• A community company must have a community interest, that is, where the community will benefit from the company’s 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 ‘lock’ on the disposal of assets of the community company.
• Directors must prepare a report on the activities of a community company each financial year.

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WHAT ARE THE OBJECTIVES OF HAVING COMMUNITY COMPANIES IN GRENADA?

The new community company structure has been introduced to:

➣ Provide communities with a simple and cheap way to incorporate and operate.

➣ Provide clear obligations so the way the community company operates is well understood.

➣ Protect the communities through regular reporting of activities to the community.

➣ Give better certainty for third parties who want to do business with the community companies such as lenders, investors, and other businesses.

➣ Protect and grow the community assets for current and future members.

Basic requirements to set up a community company

The basic requirements for incorporating a community company are the same as those for a private company. This includes submitting the names and details of shareholders and directors, and company contact details through the electronic process on this website. A set of company rules must also be provided if they differ from the model rules in the Companies Act. The requirements for operating a private company also apply, and details of this can be found here in the Learn what a company is section.

Community companies do have special requirements including:

➣ The principal objective of the company must be that it promotes a community interest, so a statement of the company’s community interest must be included. The meaning of community interest is further detailed below.

➣ The name of the company must have the words “Community Company Limited” 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.

➣ The community company must have at least 1 shareholder and 1 director. The director must be a person and cannot be another company.

➣ The requirements for operating a private company also apply, and details of this can be found here in the Learn what a Company is section.

A Registration fee is required for the incorporation of a company. 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.

What does a community mean?

Since the purpose of the community company is to benefit the community, it is important to have a clear idea of who the company should be serving.

A community is a group of people who share a readily identifiable characteristic. If a reasonable person thinks that a particular group of people shares that readily identifiable characteristic, then this group would constitute a community. A community company may not have as its principal objective, the promotion of a political purpose.

Some examples of communities might include:

➣ Residents of a specific area in Grenada

➣ People with difficulties learning to read and write

➣ People who suffer from a specific disease

➣ Cocoa growers in a particular region of Grenada

➣ Women who make handicrafts in a Grenadian community

➣ A village in Grenada wanting to expand its fishing operations

➣ A community in Grenada wanting to grow more crops with a government grant

The definition of community is intended to be quite broad. The key is that the community must be wider than just the shareholders and employees of the community company.

Often a community might be wider than the shareholders of the community company. For example, it might be “young unemployed people of a specific area in Grenada”. Not every single young unemployed person in that area will be a shareholder of the company, but they will all be part of that community.

Some groups may be readily identifiable, but a reasonable person might not think of them as a genuine community, for example, “my friends” or “regular drinkers of a specific beverage”. These types of groups are unlikely to be eligible to form a community company.

What is a Community Interest?

In a normal company, it is the owners and employees who benefit the most from the business. A community company is different because the main benefits must be for the community, rather than the individuals who own or run the company.

The Companies Act includes an important test, called the community interest test, which every community company must satisfy.

The Community Interest Test

The community interest of the company must be where the benefit is to the community. This test is satisfied where a reasonable person might consider that the company is carrying on business to benefit the community.

In order to satisfy the test, it is worth looking at the:

➣ Purpose of setting up the company

➣ The activities which the company will participate in, and

➣ Who will benefit from those activities.

Not every activity of the company needs to benefit the community directly, but overall, the activities should in some way, be beneficial to the community.

For example, if the company sells products that do not directly benefit the community, but the profits made from selling them are used for community benefits, then this will satisfy the community test.

It is also acceptable for the company to benefit its employees by for example, paying them a salary, or commissions on products they sell. This is because the company wouldn’t be able to function properly at all if it didn’t pay its employees and, as a consequence, it would fail to benefit the community.

The key is that the company must have a wider benefit beyond just the shareholders and directors.

If an activity has a negative effect on the community, then this will not satisfy the test. Also, activities that are primarily political will not satisfy the test.

Who are shareholders and directors of a community company?

Information about how to choose shareholders and directors.

WHO SHOULD BE APPOINTED AS SHAREHOLDERS AND DIRECTORS?

The individuals who govern the community company are its directors and shareholders. The determination of who will occupy these roles is made during the process of applying for the incorporation of the community company. These roles can, of course, be altered in accordance with the company’s rules.

The directors of a community company bear the same responsibilities as directors of any other company. They must possess a clear understanding of the company’s operations, its financial performance, and the manner in which the company benefits the community.

They are obligated to act honestly and to prioritize the company’s interests above their own personal gains.

Directors of a community company are encumbered with the same liabilities as those governing a private company. Further details on these obligations, referred to as directors' duties, are provided in this section on the guide to being a Company Director.

The shareholders are deemed the proprietors of the company. However, within the context of a community company, this implies that they hold their shares in the service of, and in trust for, the community. Their actions and decisions must mirror the interests of the community.

Special Rules for Community Companies

Special Rules for Community Companies

Because the company exists to benefit a community, there are some special rules to protect the community.

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:

Community companies cannot make any distributions of funds or pay any dividends to its shareholders.

Community companies cannot make loans to directors or shareholders.

There is a ‘lock’ on the disposal of assets of the community company.

Directors must prepare a report on the activities of a community company each financial year.

No Distributions or Dividends to Shareholders

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.

No Loans to Directors or Shareholders

Loans cannot be made to directors or shareholders of community companies. Making a loan to a director or a shareholder is another way individuals have been able to take a company’s 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.

‘Lock’ on Disposing Company Assets

Before deciding to register a community company, it is very important to understand the asset-lock, because it has long-term consequences. Under the Companies Act, 75% of shareholders must agree to the disposal of a community company asset that are outside its ordinary course of business. The asset must also be sold for market price.

Annual Reporting

Every financial year, the directors of the company must provide a report to the community and to the Registrar outlining for that year:

Remuneration (such as salaries or other benefits) received by directors

How the company’s activities benefitted the community

What consultations were undertaken with the community, and What, if any, assets were disposed of by the company.

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.

Other Issues

Paying Directors of Community Companies

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 director’s remuneration. The directors must also report to the registrar each year how much they are being remunerated, and this information will be publicly available.

Involving the Community

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.