Business formats explained: Community Interest Companies (CICs)
Community Interest Companies (CICs) is the structure under
which most social enterprises are registered. They have
increased in popularity over the last few years as social
enterprise has impressed itself upon the public's imagination - but
if you wish to start one, be prepared for a rigorous approval
process.
What are CICs?
- The CIC office was opened in July 2005 to create a legal
structure for businesses designed to benefit communities. CICs are
like limited companies in that they're a separate legal entity from
their owners, shareholders can take dividends, and they can
be limited by guarantee or shares or it can be floated on the stock
market, but as a CIC it will be subject to certain
regulations.
- CICs are not 'not-for-profit' organisations like
charities. Like any other business, CICs aim to make a profit and
pay all their employees salaries, but unlike ordinary businesses,
the profits won't automatically go to the company's
owners or shareholders - the idea is that they go to the
community the company has been set up to benefit.
- CICs are subject to an 'asset lock', which ensures the
company's assets are used for the benefit of the community, rather
than for the benefit of its shareholders. Essentially, it means if
you transfer any of the business' assets - for example, you decide
to sell the business's intellectual property - it must be retained
within the company, used for the community purposes for which they
it was formed, or sold to another asset-locked body such as another
CIC or a charity.
- CICs are also subject to a dividend cap, which
means dividends can only go back into the community, rather than,
for example, private investors. The CIC regulator's Community Interest Companies 67-page briefing
pack, though, notes that 'this is a detailed subject beyond the
scope of these notes upon which professional advice should be
obtained' - so if you're in any doubt, seek advice from your
solicitor.
The community interest test
- Under the rules for a CIC, a 'community' can be the population
as a whole or a 'definable sector or group of people in the UK or
elsewhere'. It needs to be a group any reasonable person would
consider to be a genuine section of the community: 'my family' or
'users of Smarta' wouldn't be eligible.
- A 'community' can denote the residents of a certain area,
people with a certain disability, a certain vulnerable age group,
or other vulnerable groups.
- CICs can also be set up to encourage people into taking
up a certain hobby or sport, help research something, to preserve a
certain language or culture or to establish an
institution.
- For a full list, see the CIC regulator's briefing pack.
- Before you can register your business as a CIC, it must satisfy
the community interest test. For this, you will need to submit a
community interest statement detailing the purposes for which it is
set up, what activities it will engage in and who will benefit from
its activities. The registrar will then determine whether your
business sufficiently benefits the community for which it was set
up.
- You will then need to submit an annual community interest
report to the regulator to ensure the business is still geared
towards the community it was originally set up to benefit.
Checklist
- A CIC must be set up to benefit a community
- CICs can pay their employees but are subject to an asset lock
and a dividend cap
- The community it is set up to benefit must be 'genuine'
- You will need to submit a community interest to ensure the
business satisfies the community interest test
- You will need to submit and annual community interest
report
Resources
Smarta offers a company registration service powered by the
National Business Register. You can search for available
names then register a business name, or set up a company and/or
register a trademark with us. You will receive a professional
binder with all your official documents via post within 3 days.
Go to our company registration tool here: Company registration tool
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