SFC - A Community Interest Company

Stenhousemuir Football Club has just adopted a new approach to running a football club and become a Community Interest Company (CIC). It is the first football league club in Scotland to do this, and probably the first in the UK.

Stenhousemuir Football Club was established in 1884. It started as a club for members but like many football clubs it converted to a limited liability company. Although the largest shareholding is now held by the Supporters Trust (14%) the club was still exposed to being taken over by people who did not have the best interests of the club at heart and could cause problems of the type well know in modern football in the UK. Also, the club has been expanding its community work and wished to declare its full commitment to the community. It has therefore become a CIC. Although the legal structure of a CIC allows modest dividends to shareholders and payments to Directors, SFC CIC have added to its Articles of Association the requirement that dividends or Director's salaries cannot be paid.

SFC has always considered itself to be a community club and has built up its community work up over recent years. It now provides a wide range of activities and for further information please look at the 'community programmes' in the community part of this site i.e. www.stenhousemuirfc.com/community/warriors/

To demonstrate its continual commitment to the local community, open up possibilities for the provision of grants for new community sports facilities, and safeguard its assets and future of the club, SFC has become a CIC. This change has been brought about through the cooperation of the Board of Stenhousemuir Football Club and the Warriors Supporters Trust, and approved by its shareholders. The legal work was carried out by Wright, Johnston and Mackenzie LLP, Glasgow.

What are the problems with ordinary limited companies?

Prior to becoming a CIC, Stenhousemuir FC was constituted as an ordinary limited company, this being the normal business model used by most of the league clubs in the UK. Company law allows such companies to carry out business transactions that may be completely against the aims and wishes of their supporters and to the detriment of the club. It protects investors and shareholders but provides little or no protection to the community or its supporters, and will not act to prevent asset-striping and other undesirable behaviour that football supporters are familiar with.

What is a CIC?

A few years ago a new type of company structure was established by the Government and called a 'Community Interest Company' (CIC). A CIC adds an ethical dimension to corporate law.  A CIC is similar to a normal company and SFC CIC will therefore continue to be run by a Board of Directors who will employ people, borrow money, and trade as before. A CIC is subject to normal company law, but it must additionally act for the good of the community, and has other restrictions that prevent its profits and assets being diverted away from its supporters and the community. More information about CIC can be obtained at: http://www.cicregulator.gov.uk/.

What are the advantages of a CIC?

The advantages of a CIC over a normal company is that

  1. It has an 'asset lock' that prevents the assets of the company being stripped from the company.
  2. The dividends and Directors salaries are restricted (although in the case of SFC CIC there will be no dividends and Director's salaries.)
  3. The company must work for the good of the community.

Because of these restrictions, a CIC will not attract investors, shareholders and directors for the wrong reasons as they will not like the idea of a community-minded club, and will be unable to sell the clubs assets, such as the ground. However, anyone attracted for the right reasons, and willing to put money in the club for the good of the club, are very welcome. A CIC also gives some protection to the club against owners who let their desire for team success to cause them to act irresponsibility.

What is an asset lock?

A major feature that distinguishes CICs from normal companies is the 'asset lock' which prevents shareholders or directors taking value out of a business. For example, if a property developer wanted to build a big shopping centre in our ground and offered a large sum of money, SFC CIC can sell the ground, but must obtain the full market value. If one of the Directors was involved in the property company, and wanted to sell it at less than market value to his company, then that counts as value being taken from the CIC, and the regulator can intervene. However, in the case of a CIC, if the ground is sold at full value, the money can be used for the club's benefit to buy a new ground but the money can not be passed onto shareholders by way of dividends, spent on larger Director's salaries, or frittered away on day-to-day expenditure.

The law that regulates CICs allows dividends to be given to shareholders, and wages to be paid to Directors, but these are regulated to ensure that they are not excessive. However, the Directors and shareholders of SFC CIC have decided that NO profits will be given to shareholders, and Directors will not be paid for their work as a Director.

Grants

Ordinary limited companies do not normally get grants to provide community facilities, as grant-awarding bodies understand that the grants are likely to be used to increase the profitability of the business and increase the profits distributed to shareholders or owners. However, social enterprises such as charities, CICs, and not-for-profit groups can receive such grants. Through its change to a CIC, SFC has shown itself to be working for the community, and does not give any profits to shareholders and is therefore now eligible to receive additional grants and other support to increase its sports facilities. The local community round Stenhousemuir is rapidly expanding and is very short of sports facilities and SFC CIC hope to help provide new facilities. They will not confine their interest just to football and are keen to provide any facilities which will increase the health and social well-being of the local community.

What about loans made against assets?

Becoming a CIC does not insulate SFC from poor business performance, and its creditors. If SFC CIC runs its affairs badly and defaults on bank loans or other debts, then its creditors can sell its assets to get their money back.

Approval of the conversion of SFC to a CIC by the football authorities

The change of SFC's company status to a CIC has been approved by both the SFA and the SFL. SFC is the first football club within the regulation of these authorities to become a CIC. It is believed that SFC is the first football league company in the UK to become a CIC.

Can a CIC revert to its original status?

Once a company becomes a CIC it cannot return to its original status as a normal company; its only option is to become a full Charity.

Change of the structure of the shareholding

The value of the shares of the previous company, Stenhousemuir Football Club Ltd. was £375. However, the average supporter wishing to buy a share found this expensive. To encourage more supporters to become shareholders, one share of the present club will be exchanged for 10 shares of the new CIC and hence the new shares will be worth £37.50. Supporters may therefore become a shareholder of SFC for £37.50.