Community interest company

A community interest company (CIC) is a type of company introduced by the United Kingdom government in 2005 under the Companies (Audit, Investigations and Community Enterprise) Act 2004, designed for social enterprises that want to use their profits and assets for the public good.[1] CICs are intended to be easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community. They have proved popular and some 10,000 registered in the status's first 10 years.[2]

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Main article: Social enterprise

A community interest company is a business with primary social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. CICs tackle a wide range of social and environmental issues and operate in all parts of the economy. By using business solutions to achieve public good, it is believed that CICs have a distinct and valuable role to play in helping create a strong, sustainable and socially inclusive economy.[3]

The community interest company emerged from a number of sources, many citing the absence in the UK of a company form for not-for-profit social enterprises similar to the public benefit corporation in the USA. One early notable proposal was advanced in 2001 by the Public Management Foundation in "The case for the public interest company",[4] based on research supported by the Gulbenkian Foundation, Gordon Roddick and the Office for Public Management.

CICs are diverse. They include social and community enterprises, social firms, mutual organisations such as co-operatives, and large-scale organisations operating locally, regionally, nationally or internationally.

CICs must be limited companies of one form or another. A CIC cannot be a charity, an IPS or an unincorporated organisation.

Limited liability companies that do not have charitable status find it difficult to ensure that their assets are dedicated to public benefit. There is no simple, clear way of locking the assets of such a company to a public benefit purpose, other than applying for charitable status. The community interest company is intended to meet this need.

When a CIC is requested, the CIC regulator considers whether the application meets the criteria to become a CIC. If satisfied, the regulator advises the registrar in Companies House who, provided that all the documents are in order, will issue a certificate of incorporation as a CIC.

A charity can convert to a CIC with the consent of the Charity Commission. In so doing it will lose its charitable status, including tax advantages. A charity may own a CIC, in which case the CIC would be permitted to pass assets to the charity. CICs are more lightly regulated than charities but do not have the benefit of charitable status, even if their objects are entirely charitable in nature.

Those who may want to set up a CIC are expected to be philanthropic entrepreneurs who want to do good in a form other than charity. This may be because:

  • CICs are specifically identified with social enterprise. Some organisations may feel that this is more suitable than charitable status.
  • Members of the board of a charity may only be paid where the constitution contains such a power and it can be considered to be in the best interests of the charity. It means that, in general, the founder of a social enterprise who wishes to be paid cannot be on the board and must give up strategic control of the organisation to a volunteer board, which is often unacceptable. This limitation does not apply to CICs.
  • They are looking to work for community benefit with the relative freedom of the non-charitable company form to identify and adapt to circumstances, but with a clear assurance of not-for-profit distribution status.
  • The definition of community interest that applies to CICs is wider than the public interest test for charity.[5]

CICs must annually provide form CIC34 as part of their annual submission to Companies House. This includes confirmation of Director remuneration and some explanation of their social impact or evidence of the social benefit that they have provided over the last financial year.

Formation and registration

Formation and registration are similar to that of any limited company. New organisations can register by filing the Form IN01 and memorandum and articles of association together with a form CIC36 signed by all their directors, explaining their community credentials, to the Registrar of Companies for England and Wales, or the Registrar for Scotland, with a fee of £35. Since 11 March 2019, CICs can be registered online for a reduced fee of £27.[6]

Existing companies can convert to a CIC by passing resolutions which make changes to their name and to their memorandum and articles of association and by delivering to the Registrar of Companies copies of these documents, together with a fee for £35, and a form CIC37 (which is similar to a CIC36, but asks for confirmation that the company is not a charity, or that permission has been obtained from the Charity Commission to convert from a charity to a CIC). The Registrar will conduct the normal checks for registration and pass the papers to the Regulator of Community Interest Companies, to determine whether the company satisfies the community interest test.[7]

CICs cannot:

  • be politically motivated (regulation 3 of the Community Interest Company Regulations 2005)
  • be set up to serve an unduly restrictive group (regulations 4 & 5)
  • be a charity
  • carry out unlawful activities.
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See also

References
  1. "What is a CIC?". CIC Association. Archived from the original on 11 October 2015. Retrieved 30 September 2015.
  2. "The rise and rise of the community interest company". Third Sector. 1 June 2015. Retrieved 30 September 2015.
  3. Bounds, Andrew (9 July 2013). "Social enterprises seen as driver for growth". Financial Times. Retrieved 30 September 2015.
  4. The case for the Public interest company, Paul Corrigan, Jane Steele and Greg Parston, Public Management Foundation, 2001.
  5. Jump, Paul. "How to: Decide between charitable and CIC status". Third Sector. Retrieved 30 September 2015.
  6. "CIC Incorporations: The New Online Process". gov.uk. Retrieved 17 March 2019.
  7. "CIC business activities: forms and step-by-step guidelines". GOV.UK.
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