Asset Lock

What is the asset-lock?

The asset-lock is a fundamental feature of CICs. It is important to understand the concept before setting up a CIC as it has permanent long-term consequences.

"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.  Any transfer of assets 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:

  • It is made for full consideration (i.e. at market value), so that the CIC retains the value of the assets transferred;
  • It is made to another asset locked body (a CIC or charity or an a permitted Industrial and Provident Society, or non-UK based equivalent) which is specified in the CIC's 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 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 is established in legislation, and prohibits CICs from distributing their assets or profits to their members, except to the extent permitted where CICs issue equity i.e. shares and dividends. 

Staff and directors of a CIC can draw a salary but this must be within the provisions of the ' asset lock'  i.e. it must not be disproportionately high in relation to the services being provided. This also applies to management or other service charges.

The asset-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 is responsible for ensuring that the asset-lock is maintained, and stakeholders who believe that it is being breached may ask the Regulator to take action.

If you would like to speak to someone please do not hesitate to contact our Manager, Steve Smith, on steve.smith@plummer-parsons.co.uk.
Alternatively you can call the Eastbourne office on 01323 431200.