This section describes what a community means under the law, and what it means when the law says the community company must be in the ‘community interest’.
What is a community?
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.
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 XYZ beer”. These types of groups are unlikely to be eligible to form a community company.
Often a community might be wider than the shareholders of the community company. For example, it might be “young unemployed people of Choiseul”. Not every single young unemployed person in Choiseul will be a shareholder of the company, but they will all be part of that community.
So what does all this really mean?
Let’s take some examples of communities might include:
- Residents of KiraKira
- People with difficulties learning to read and write
- People who suffer from ABC disease
- Cocoa growers in North Malaita
- Women who make handicrafts in Honiara
- A Marau village wanting to expand its fishing operations
- A Rennel community wanting to grow more crops with a government grant.
A community company may not have as its principal objective, the promotion of a political purpose.
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.
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 ok for the company to benefit its employees by for example, paying them a salary, or commissions of products they sell. This is because the company wouldn’t be able to function properly at all if it didn’t pay it’s 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.