What is a Community Interest Company

The Community Interest Company (CIC) is a new type of company which is required to use its profits and assets for the benefit of the community rather than for private gain. It has all the flexibility and certainty of the company form with some additional features to ensure that it works for the benefit of the community or the wider public. A CIC can choose from one of three company forms: a private company limited by shares, a private company limited by guarantee or a public limited company.

Who is the Community?

A company satisfies the community interest test if a reasonable person might consider the activities the CIC is undertaking are being carried on for the benefit of the community. The CIC Regulator must decide whether applicants for CIC status satisfy this test. His decisions are subject to review by an Appeals Officer (appointed by the Secretary of State).

Community for the purposes of a CIC must be wider than the members of the CIC. It must also be wider than the employees who work for the CIC; there has to be a wider community benefit than benefit to members and employees of the company.

The Regulations made under the Act provide that any group of individuals may constitute a section of the community if:

they share a readily identifiable characteristic; and
other members of the community of which this group forms part do not share that characteristic.

Who might form a CIC?

The CIC is flexible. It may prove attractive to many different enterprises, of varying size and activity. Some existing charities that operate a trading arm may decide that the distinction the CIC confers, clearly differentiating their philanthropic work from the pursuit of profits for the social good, is valuable to them.

Through the use of the familiar company format the government is hoping that investors and institutional lenders will find it an attractive vehicle for setting up and financing social enterprises. CICs have been introduced to meet the needs of local communities such as childcare provisions, social housing, leisure and community eg community centres.. The Companies (Audit, Investigations and Community Enterprise) Act 2004 (the Act) received Royal Assent on 29 October 2004. Pursuant to the Act, the Secretary of State has made regulations to deal with the conduct of CICs. These are contained in the Community Interest Company Regulations 2005 (the Regulations) which came into force on the 1 July 2005.

Key Features

The setting up and running of a CIC will be similar to that of an ordinary limited company.
However, there are two main features that will distinguish CICs from private limited companies:

The Asset Lock :

This is a provision whereby the assets and profits of the CIC must be permanently retained within the CIC and used solely for the benefit of the community or transferred to another organisation which itself has an asset lock, such as another CIC or a charity. (In the case of an ordinary company limited by guarantee without share capital, though there are no shares through which to distribute dividends, the constitution can be changed at a later date to distribute profits to members). A CIC limited by shares can pay dividends to individual shareholders, although, this will be subject to a cap; and

The Community Interest Statement and Report :

This is a statement that must be lodged with the Registrar of Companies, together with the other incorporation documents signed by all the intended and actual directors, certifying that the company is formed to serve the community rather than private motive. It must also describe the activities that the CIC intends to engage in as further proof that it is intended to profit the community. The CIC must also produce an annual community interest report, together with annual accounts, to Companies House to be placed on the public record. The report must record what the CIC has done to pursue the community interest and involve its stakeholders during the year.

CICs will not have any special tax status unlike charities. Due to the types of activities undertaken or location they may however be eligible for other tax concessions or grants.

CICs as with other social enterprises are receiving government support through the Community Interest Tax Relief (CITR) which gives tax benefits to investors who back businesses in disadvantaged areas through Community Development Finance Institutions (CDFI). CITR provides tax relief of 5% per annum to investors who invest in an accredited CDFI, which then in turn lends to or invests in a qualifying profit-distribution enterprise or community project such as a CIC.

Community Interest Companies will need to use the initials CIC, or the words Community Interest Company in their title, though in the case of PLCs it will read Community Interest Public Limited Company; or Community Interest PLC.
Each year CICs will be required to produce an annual Community Interest Report as well as the annual accounts which are delivered to Companies House.

Charities

CICs shouldn't be confused with charities. CICs do not have charitable status. This means they do not get the tax benefits of a charity, but in return they do not have the strict reporting requirements of a charity. However charities in England and Wales will be allowed to convert into CICs with the permission of the Charities Commission. Charities will also be able to establish CICs as subsidiaries. They will be useful to act as trading arms of charities.

The type of Community Interest Company we can set up for you:-

Community Interest Company, Limited by Guarantee (not for profit) with a small membership
Designed for companies where all the directors are members of the company and all of whose members are directors of the company. It assumes that the directors will take most important decisions as directors rather than as members, and that directors may hold office continuously for long periods of time without offering themselves for re-election. It also allows, subject to certain minimum procedural safeguards, for relatively informal decision-making by directors (including by exchanges of e-mail).
Community Interest Company, Limited by Guarantee (not for profit) with a large membership
Designed for companies that have more members than they have directors. Although it assumes that the directors will take most day to day decisions about the company's business, it also gives the members a strong role in controlling the overall governance of the company. It includes provision for some of the directors to retire and offer themselves for re-election each year. The procedures for decision-making by directors are more formal than in the other model constitutions.
Community Interest Company, Limited by Shares with a small membership
Designed for companies where all of directors are members of the company and all of whose members are directors of the company. It assumes that the directors will take most important decisions as directors rather than as members, and that directors may hold office continuously for long periods of time without offering themselves for re-election. It also allows, subject to certain procedural safeguards, for relatively informal decision-making by directors (including by exchanges of e-mail).
Community Interest Company, Limited by Shares with a large membership
Designed for companies that have more members than they have directors. It assumes that the members will delegate most the decision-making within the company to the directors, but gives members a significant role in relation to the overall governance of the company. It includes provision for some of the directors to retire and offer themselves for re-election each year. It also allows, subject to certain procedural safeguards, for relatively informal decision-making by directors (including by exchanges of e-mail).
Public Community Interest Company with all shares being available for advertising for public subscription.
Businesslegal fees for incorporation of a Community Interest Company.