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What is a Community Interest Company?

Curious about businesses that prioritise community impact over profit margins? Enter the world of Community Interest Companies (CICs)! In this blog post, we’ll delve into what is a Community Interest Company, how it differs from charities, and the steps to set up your very own socially conscious enterprise. Join us on this journey to discover how you can make a difference while running a successful business!

What is a Community Interest Company?

What is a Community Interest Company?

A Community Interest Company, or CIC, is a special type of business structure in the UK designed for companies that aim to benefit the community. Unlike traditional businesses solely focused on profit, CICs have a social mission at their core. This means they prioritise making a positive impact on society while still operating as a viable enterprise.

CICs come in various forms, from social enterprises tackling environmental issues to organisations supporting marginalised communities. What sets them apart is their commitment to serving the common good and reinvesting any profits back into their social objectives.

By blending business acumen with altruistic goals, CICs offer a unique model where financial sustainability aligns with societal benefits. Whether providing employment opportunities for disadvantaged groups or promoting sustainable practices, these companies embody the ethos of doing well by doing well.

Types of CIC Company

CIC stands for “Community Interest Company,” a type of company in the United Kingdom that exists to benefit the community rather than private shareholders. There are different types of CIC companies based on their focus or sector, such as:

  1. Social Enterprise CICs: These CICs operate with a social or environmental mission at their core, aiming to make a positive impact on society or the environment.
  2. Health and Wellbeing CICs: These CICs focus on providing health services, promoting wellness, or supporting mental health initiatives within the community.
  3. Arts and Culture CICs: These CICs may focus on promoting arts, culture, heritage, and creativity within the community through events, workshops, exhibitions, and more.
  4. Environment and Sustainability CICs: These CICs are dedicated to environmental conservation, sustainability practices, recycling initiatives, or other eco-friendly projects.
  5. Community Development CICs: These CICs work on community development projects, including improving infrastructure, providing educational programs, supporting local businesses, or enhancing public spaces.

These are just a few examples of the types of CIC companies that exist, each with its own unique focus and contributions to the community.

Difference Between a Community Interest Company and a Charity

Difference Between a Community Interest Company and a Charity

Community Interest Companies (CICs) and charities are both types of organisations that aim to benefit society, but they differ in their legal structures and operational frameworks. Here are some key differences between a Community Interest Company and a charity:

1. Legal Structure:

  • CICs are registered as companies limited by guarantee, with a specific CIC regulator overseeing their activities
  • Charities are registered with the Charity Commission or equivalent regulatory body and operate as charitable organisations

2. Profit Distribution:

  • CICs can generate profits, but these profits must be reinvested into the community or used to further their social mission. Any dividends paid to shareholders are capped.
  • Charities are not allowed to distribute profits to members or shareholders. Instead, any surplus funds must be used to further the organisation’s charitable purposes.

3. Governance:

  • CICs have directors and members who oversee the company’s operations, and they must report annually on how they have benefited the community.
  • Charities have trustees who are responsible for governing the organisation and ensuring it operates in line with its charitable objectives.

4. Tax Status:

  • CICs are subject to corporation tax on any profits they generate, similar to regular companies
  • Charities may receive tax exemptions and reliefs, such as Gift Aid, VAT relief, and inheritance tax exemptions, to encourage donations and support their charitable work.

5. Regulatory Requirements:

  • CICs must adhere to the regulations set out by the CIC regulator, ensuring they meet the requirements of being a socially responsible business.
  • Charities are regulated by the Charity Commission, which oversees their activities to ensure they meet legal and ethical standards as charitable organisations.

Overall, while both CICs and charities are focused on benefiting society, they differ in terms of legal structure, profit distribution, governance, tax status, and regulatory requirements.

How is a CIC registered?

To register your Community Interest Company (CIC), several key tasks must be completed to ensure compliance and legal recognition. These tasks include:

  1. Choosing the right Articles of Association: Selecting appropriate Articles of Association tailored to the specific goals and structure of your CIC is crucial. These articles outline the regulations and guidelines governing the company’s operations, including its purpose, management, and decision-making processes.
  2. Drafting the objects clause: Crafting a clear and comprehensive objects clause is essential for defining the primary objectives and social purposes of your CIC. This clause articulates the intended impact and benefits that the company seeks to achieve within the community it serves.
  3. Writing your community interest statement: Formulating a compelling community interest statement is integral to articulating the social mission and values driving your CIC. This statement should succinctly communicate the organisation’s commitment to serving the public good and fostering positive social change.
  4. Specifying and drafting your asset lock: Establishing an asset lock mechanism is a fundamental requirement for CICs, ensuring that the company’s assets and profits are dedicated to furthering its social objectives. Drafting a robust asset lock provision is essential to safeguarding the company’s mission against potential privatisation or misuse of resources.
  5. Completing and signing form CIC36: Form CIC36 is the official application form required for registering a CIC with Companies House. It includes essential details about the company, its directors, and its proposed activities. Completing and signing this form accurately is a crucial step in the registration process.
  6. Having a method to pay the Government fee: When applying online to register your CIC, ensuring you have a reliable method to pay the government fee of £27 is necessary. This fee covers the administrative costs associated with processing the registration application.

How to Set Up a CIC Company?

How to Set Up a CIC Company?

Community interest companies (CICs) are designed to offer a straightforward setup process, mirroring the structure of conventional companies. However, in contrast to for-profit enterprises, CICs feature distinct provisions aimed at advancing community welfare.

To set up a CIC, you must furnish:

  • A community interest statement elucidates the intended activities and objectives of your enterprise
  • An asset lock serves as a legal commitment stipulating that the company’s resources will solely be utilised to fulfil its societal aims, with stringent restrictions on shareholder remuneration.

Additionally, authorisation from the community interest company regulator is imperative for your company’s formation.

The application for CIC registration can be conveniently completed online. Since March 2019, the online registration incurs a reduced fee of £27.

When is a CIC Appropriate?

The Community Interest Company (CIC) is increasingly appealing to a diverse range of enterprises spanning various sizes and industries. Some established charities have opted to convert to CICs, while others with charitable activities involving trading may find value in the distinct identity conferred by a CIC, which separates their charitable endeavours from profit-driven pursuits for social benefit.

Many unincorporated organisations managing recreational, village, and community facilities, often possessing valuable assets, may view CIC incorporation as a means of safeguarding their assets. Through the limited liability principles of Company Law, incorporation as a CIC can offer protection to those overseeing these entities.

Additionally, newly formed charities may opt to establish CICs if they intend to engage in trading activities or own real estate. In such scenarios, careful consideration is required to weigh the potential benefits of CIC formation against the risk of forgoing tax concessions available to registered charities. While CICs do not inherently offer special tax advantages, they may access specific regional relief and funding opportunities such as those provided by lotteries.

Moreover, CICs are gaining traction among a burgeoning group of social entrepreneurs. The CIC model empowers individuals driven to establish socially impactful enterprises to retain operational control over their ventures. Furthermore, CICs have the flexibility to remunerate directors, adding to their attractiveness for aspiring social entrepreneurs.

CIC Articles of Association

CIC Articles of Association

The Articles of Association for a Community Interest Company (CIC) are a set of rules that outline how the CIC will be run. It includes details about the company’s purpose, activities, and how decisions are made. These articles help ensure transparency and accountability within the organisation.

When drafting the Articles of Association for a CIC, it is crucial to align them with the company’s community-focused goals and objectives. This can include provisions on asset locks, dividend caps, and restrictions on share transfers to safeguard its social mission.

Additionally, the Articles should detail how surplus funds will be reinvested back into the community or used to further support the CIC’s social cause. By clearly outlining these guidelines in its governing documents, a CIC can demonstrate its commitment to operating for the benefit of society.

Having well-crafted Articles of Association is essential for guiding the operations and decision-making processes of a Community Interest Company towards achieving its social impact goals.

Conclusion

Community Interest Companies (CICs) play a crucial role in bridging the gap between traditional businesses and charities. By operating with a clear social mission and accountability to their community stakeholders, CICs can make a positive impact on society while also running sustainable businesses.

If you are passionate about making a difference in your community and want to combine your entrepreneurial spirit with social responsibility, setting up a CIC could be the perfect choice for you. By understanding the unique characteristics of CICs, differentiating them from charities, and knowing how they are registered and structured, you can embark on this rewarding journey of creating social change through business.

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