The desire to embed your purpose into the legal and governance structure of your company to support its growth is a fundamental driver for many company founders. There is a growing trend in the UK for companies converting to or starting up as a Community Interest Company (a “CIC”).
A CIC is a non-charitable limited company specifically designed for social enterprises that want to use their profits and assets to benefit a community or pursue a social purpose.
A CIC offers the ability for the company to offer a service or a product for profit, which it can channel into changing the community for better. Adopting a CIC structure can show a clear commitment to supporting community and social goals.
- A CIC has an overriding community purpose which is set out in its objectives (captured in its articles of association). Throughout the life of a CIC, it must satisfy the ‘community interest test’ which shows that the reasonable person would consider the activities the company undertakes to be for the benefit of the community.
- A CIC can be limited by guarantee or shares. A CIC can be established with the ability to pay dividends and profits, unlike a charity. Please note, this is capped at 35% of distributable profits (Maximum Dividend Cap).
- The CIC has a statutory ‘asset lock’ which is designed to ensure that the assets of the CIC are used for the benefit of the community. This can be useful to attract investment and is included in the CIC’s articles of association.
- If dissolved, the assets of the CIC remain locked and must be transferred to another asset locked body (a CIC or charity).
- The CIC is regulated the U.K Government’s CIC Regulator, whose primary role is to oversee compliance and ensure that the CIC operates in a way that is compatible with the company’s status. The Regulator takes a ‘light touch’ approach in comparison to the Charity Commission. Regulator can intervene in certain circumstances and assists in maintaining the integrity of the CIC.
- The CIC is not a charity and can engage with a variety of trading activities without the restrictions imposed by the Charity Commission and HMRC.
- Each year a CIC must file an annual community interest company report with the CIC Regulator, along with the usual Companies House filings.
- The CIC still benefits from the same limited company protection as other limited companies.
- Some investors / donors only provide funding to CICs or charities, due to the protections these corporate vehicles offer. The CIC is a great choice for access to finance and is one of the key reasons why a social enterprise may choose to operate as a CIC rather than a regular company.
- Unlike a charity, a CIC can pay a proportion of its profits to shareholders. This is an excellent way to effect social change and generate profit.
- All or some of the directors of a CIC can be paid. It is important to note however, that the CIC Regulator can intervene if the pay is excessive.
- A CIC must submit an annual report which is available to the public. This increases transparency which can inspire confidence and trust in the company. The CIC is designed for ‘doing good’ which can increase engagement and reinforce the company’s brand.
Setting up a CIC
The CIC formation is similar to that of any limited company. To become a CIC it is a single application to Companies House, which is reviewed by the CIC Regulator. The constitution of the CIC is the memorandum and articles of association.
Is a CIC right for you?
If you would like to find out more about CICs and how social enterprise structures could better support your purpose, please contact our Corporate Team who would be happy to assist you to identify the best form of company to meet your objectives.