If you are considering setting up a Community Interest Company, also known as a CIC, there are some important considerations relating to the type of company that will work most effectively for your social enterprise.
What is a CIC?
A Community Interest Company (CIC) is a combination of a limited company and a charity, using its profits and assets to benefit the community rather than private shareholders. First established in 2005, there were almost 24,000 CICs on the public register at the end of March 2021 – an increase of more than 6,000 on the previous year.
What to consider when setting up your CIC
- A CIC or a charity? A CIC is much quicker and easier to set up and will not be subject to the high levels of bureaucracy that are imposed on charities. However, CICs do not get the often significant tax reliefs that a charity receives, such as Gift Aid.
- What type of CIC? There are two kinds of CIC; either limited by shares or limited by guarantee.
A CIC limited by guarantee is a company with no share capital and which cannot pay dividends. If it were to fail, the owners would meet the company’s debts up to a specified limit. Beyond that, they have no further liability for the company’s debts. CICs limited by guarantee can only be private companies.
A CIC that is limited by guarantee should have at least one director or subscriber. Depending on the bank or funding body, three may be required. All directors are responsible for ensuring that the CIC is run in such a way that it will continue to satisfy the community interest test.
Executive Directors are responsible for the daily management, operation, and delivery of the activities of the CIC. All Directors are also responsible for ensuring that the CIC is run in such a way that it will continue to satisfy the community interest test.
A CIC limited by shares has an amount of capital divided into a number of shares. Once a shareholder has paid the full nominal value to the company, that individual will have no further liability. A not-for-profit company may choose to form as a CIC limited by shares to assist with fundraising. Private investors can be issued with shares and as shareholders, receive dividends. This can make a CIC an appealing investment proposition. It is notable though that given the social nature of a CIC, the level of profit paid out to shareholders is, by law, capped at 35%.
A CIC limited by shares must have at least one director and shareholder. There is no limit to the number of directors.
Please note, once your company is formed, you cannot switch between being limited by shares or limited by guarantee.
What is required to set up a CIC?
To set up a CIC, you will need:
- a ‘community interest statement,’ explaining what your business is planning to do
- an ‘asset lock’- a legal promise stating that the company’s assets will only be used for its social objectives, and setting limits to the money it can pay to shareholders
- a constitution - you can use the CIC regulator’s model constitutions
- to get your company approved by the community interest company regulator - your application will automatically be sent to them
The CIC regulator has guidance on setting up a CIC.
Need help in setting up your CIC?
We have extensive experience in helping to set up CICs and advising on a variety of topics including the initial set up of accounting systems. If you have any questions, please email me: alison.henshaw@torgersens.com.
For other articles relating to the charity sector, please visit the Not-For-Profit advice hub on our website.
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