The dividend cap for community interest companies is soon to be reviewed by their regulator.
The cap of 35 per cent on shareholders' dividends has been a contentious issue since the CIC structure was established around four years ago as some CIC bosses felt it pushed away potential investors.
A review of the cap was mentioned within the Third Sector Action Plan, announced by Cabinet Office minister Liam Byrne.
CIC regulator Sara Burgess said she had heard how the cap had been both a help and a hindrance for CICs, but that so far the evidence was merely anecdotal.
A review, due to take about 12 weeks, will take place over the spring and summer, with the results analysed in the autumn and announced near Christmas.
Burgess said: ‘There has been talk all over about whether there are barriers and limitations as a result of the cap on distributions. I hear about CICs that have gone down that road and it has worked well and others where it hasn't.
‘I'm picking up extremes from both sides, but it's anecdotal and I want formal evidence.'
The review would cover other aspects of CICs, but the dividend cap appears to be the main issue affecting investment.
Investors can only receive five per cent above the Bank of England base rate, which may ‘prevent them from investing', according to Burgess.
Performance related investment, capped at four per cent above the Bank of England base rate, also proves a problem.
‘It may be that four per cent return is not going to do it for people that need to run their own business on that return,' said Burgess.
The review has been welcomed by the CIC Association, which aims to ensure CICs are noticed by investors and policy makers.
CIC Association founder John Mulkerrin said: ‘The regulator understands that a review is required, not because there are a lot of investors declining us because of the cap, but because there is a floor which means it is not working for some.
‘The regulator needs to ask the right questions and start the debate and we support that.'
A consultation is currently being prepared as part of the review and will appear on the CIC regulator website.
All CICs, or organisations associated with CICs such as banks and investors, are being urged to take part.
