September 4th, 2018

Community Interest Companies – Vehicles for Social Enterprises

Social enterprises are playing an increasing role in empowering local communities and regenerating disadvantaged areas.

Following on last month’s article on the Leeds Community Foundation, we asked our Company Secretarial Manager Suzanne Alves to talk to us about Community Interest Companies: companies that are set up specifically for pursuing social objectives.

What is a Community Interest Company (CIC)?

They are designed as vehicles for 'social enterprises', companies that want to use their profits and assets for public benefit.

Community Interest Companies or CICs were introduced in the UK in 2005 to provide a more flexible corporate structure than a charity can offer.

Figures published in May 2018 showed a total of 14,502 Community Interest Companies on the Register with over 12,000 of those being registered in England.

What does a CIC do specifically?

The nature of those CICs in existence varies widely as social enterprises tackle a wide range of social and environmental issues and there are very few restrictions on what purpose a CIC can have. We have formed CICs with a wide range of purposes, for example, community arts projects, pre-schools, inspiring women in society, helping the homeless, community cafes, rehabilitation of offenders, environmental improvement, fair trade etc.

What is the difference between a CIC and a charity?

Like a charity a CIC must be primarily aimed at benefiting the community rather than the members or employees, however, unlike charities, it is able to deliver returns to shareholders in the form of dividends albeit subject to certain restrictions.

CIC Asset Lock

In order to retain assets, CICs are subject to an 'asset lock', which means that assets must be retained by the CIC and used in support of its activities or in any other manner which may benefit the community.

CICs are not able to transfer assets at less than market value unless the transfer meets set criteria and the payment of dividends, subject to its articles, is capped limiting the amount payable.

Do you need help incorporating or converting your existing company to CIC status?

Stanley Davis Group has been incorporating CICs since they were introduced, we can advise you on the structure and will prepare and file all of all documents with the Registrar.

Incorporating a CIC

A CIC has the same characteristics as a standard limited company i.e. legal personality, can be limited by either shares or guarantee, directors can be paid or unpaid and members are governed in the same manner. The main difference is that the CIC and its officers are under a stronger obligation to think more specifically about the community it serves and include any stakeholders in its activities.

The formation procedure for a CIC takes slightly longer than normal because papers have to be submitted to Companies House who then pass them to the Regulator of CICs for approval and a Community Interest Statement must be prepared giving a clear outline of the company’s purpose and proposed activities.

Converting a limited company to a CIC

Limited companies may convert to a CIC. Resolutions affecting the alterations to the company’s current Articles of Association must be passed and filed with the Regulator together with a Community Interest Statement and declarations that the company will not be an excluded company or a charity. The Regulator has set out various draft constitutions which may be adopted. Alternatively, modifications can be made to the Company’s current constitution.

The Community Interest Company will exist from the date of the certificate issued by the Registrar of Companies. Conversion to CIC status does not affect the made-up date of the annual return or accounts. A CIC Annual Report will be required for the accounting period in which conversion is made.

Stanley Davis Group has over 10 years’ experience in dealing with CICs and we can assist with the preparation and filing of all documents with the Registrar to ensure your company is ready to go.

Company Secretarial Department
Tel: 0207 554 2261

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