A Community Interest Company (CIC) is an enterprise set up to make a profit for the benefit of the community. CICs first appeared in 2005 and were designed to address the lack of non-charitable businesses or community-based companies.
For example, CICs began to be set up to run community facilities such as swimming pools, community centres, and other assets that were being sold off by local authorities. Today, there are thousands of CICs of all sizes across the UK, operating in a wide range of sectors, including health, the arts, media, education and social work. So, what are some of the unique features of a CIC, how are they financed, and how do you go about setting up this kind of company?
Features of a CIC
Basically, a CIC is a normal company that can be limited by guarantee, or limited by shares. What makes a CIC distinct is that it has a lock on its assets and is limited to the profits it can distribute to shareholders or members. All assets have to be used for the community purpose; if the assets are sold, the proceeds have to be used for community purpose. If a CIC ceases trading, the assets have to be transferred to a similar asset-secured company.
The community interest test
When applying to set up a CIC at Companies House, you will have to tell the regulator how the company passes the community-interest test. In other words, there has to be a clear benefit to the wider community and not just the members of the CIC. All the directors have to sign a community interest statement to this effect. If the regulator refuses the application, you have the right to appeal the decision.
Converting to a CIC
It’s possible for existing companies to convert to CICs by passing the required resolutions and submitting a signed community interest statement for the approval of the regulator. A charity that wishes to convert to a CIC will need to seek permission first from the Charity Commission.
How do CICs and charities differ?
One major difference is that directors of CICs are paid a salary and retain control of the company whereas charities tend to be run by volunteer boards. The asset lock is also unique to CICs and thanks to the social-purpose of the enterprise, they can legitimately apply for grant-funding usually restricted to charities. In fact, recognising the advantages of CICs, a number of charities who operate trading arms have converted to this model. It’s worth pointing out, however, that to date, CICs don’t enjoy the same tax advantages as charitable organisations.
Financing a CIC
Subject to certain rules, both companies and individuals can invest in a CIC and finance can also be raised through bonds and/or loans. If a CIC is set up as a company limited by shares, there is a statutory limit on the payment of dividends as well as the amount of profit that can be shared through dividends. This limit or cap is subject to change, so check with the regulator here.
Who regulates CICs?
Generally speaking, CICs are subject to light-touch regulation, certainly when compared to charities, although the CIC regulator will act in response to complaints from stakeholders to protect the community interest. Like all registered companies, CICs have to submit yearly accounts and an annual return to Companies House. CICs also have to file a community interest report at end of year, giving details of what the company did for the benefit of the community, how it involved members in its activities and, where applicable, declare any payments made to directors or dividends issued.
What’s in a name?
The regulator stipulates that the name of the CIC must end in a prescribed designation, such as ‘community interest company’, otherwise the rules that apply to company name are also applicable to CICs.
How to set up a CIC
You can apply to set up a CIC by paying the application fee and completing a form – see here. You’ll have to state the social purpose of the enterprise and the activities the CIC will carry out to achieve this goal. Article of associations and details of directors is also required. Registering a CIC typically takes around two to three weeks to complete.
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