The Community Interest Company (or CIC) is a relatively new type of company established by the Companies (Audit, Investigations and Community Enterprise) Act 2004 and regulated by The Community Interest Company Regulations 2005. The CIC model is designed to provide an effective legal form for enterprises which aim to provide benefit to the community or to trade with a “social purpose,” rather than to make a profit.
While social or community enterprises may elect to become charities, in many cases this is not possible, and in others it may not be desirable. CICs therefore occupy an important position in company law – they are a means of making clear that the intention of an enterprise is to provide community benefit, while also conferring many of the advantages commonly associated with a limited company.
A CIC may be limited by shares or by guarantee. Most are limited by guarantee. CICs limited by shares are subject to a dividend cap (explained in further detail below). This is a means of making sure that, while investment can be generated through issuing shares, the CIC model cannot be exploited for personal gain. In this way, the CIC can reassure the public that the motives behind it are genuine, while still maintaining an effective means of attracting financial support.
Most notably, CICs are not subject to the more onerous regulations and limitations which apply to charities. In particular, they can be trading enterprises benefiting from the advantages of limited liability and (if limited by shares) can issue shares and pay dividends. This provides relative freedom for the day-to-day running of the CIC, provided that the relevant caps and regulations are adhered to.
All CICs are subject to a number of important legislative provisions, many of which are set out in the Regulations. In particular, they must submit a Community Interest Statement and an annual Community Interest Report, and must also be subject to an “asset lock” – a provision written into the CIC’s articles of association which acts as a means of making sure that any assets are retained by the CIC and not transferred away from it. As a limited company, a CIC must also comply with the requirements of company law in general, and accordingly must file annual accounts and returns at Companies House in addition to its responsibilities to the Regulator.
Accordingly, a CIC must be registered both with Companies House and the CIC Regulator. A CIC can be any type of company – even a PLC – although in practice, most are companies limited by guarantee. As well as presiding over the registration process, the CIC Regulator has a continuing monitoring and enforcement role.
Why incorporate a CIC?
CICs are designed specifically so that an individual, or a group of individuals, can set up a limited company in order to benefit the community. The philanthropic nature of such enterprises may make them appear similar to charities; however, there are several key differences which render CICs unique and which can often serve to make them a more attractive proposition.
Most notably, CICs are not subject to the onerous regulation that can be synonymous with registering and running a charity. They are able to have a much more commercial nature, and can also benefit from some of the advantages of limited companies (such as limited liability and the ability to issue shares and pay dividends). This provides relative freedom in terms of the day-to-day running of the CIC, provided that the relevant caps and regulations are adhered to.
It is also much easier for the directors of a CIC to derive remuneration from the enterprise than would be the case were they instead trustees of a charity, as the limitations on remuneration of trustees do not apply to CICs. Similarly, the Community Interest Test is wider in scope than the Public Benefit Test (the equivalent test for charities), and so registration as a CIC may be a more viable option to many organisations. A CIC can also be owned by a charity in the same manner as would apply to a Charitable Trading Company, meaning that a CIC can be used as the “trading arm” of a parent charity.