This guide explores how to set up a Community Interest Company which is a bespoke legal structure for social enterprises. It includes:
What is a Community Interest Company? The Community Interest Statement Defining a community
The Community Interest Test Asset Lock Dividends Remuneration Applying to be a CIC Advantages and disadvantages A CIC is not the only legal structure you can adopt to operate as a social enterprise so, if you haven’t already looked at the alternatives, please consult our What is a Social Enterprise? FAQ for more information.
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What is a Community Interest Company? •
A limited company with special additional features,
which trades with a social purpose (“social enterprise�) or carries out activities for community benefit and not purely for private advantage.
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•
The structure is overseen by the CIC Regulator
www.bis.gov.uk/cicregulator who uses an application process to decide who is eligible to become a CIC. •
The application process requires you to: • register a limited company (a company limited by shares or company limited by guarantee)
• pass the Community Interest Test • prove that the company’s assets are locked for the benefit of the community.
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Community Interest Company = Limited company
Special additional features
+ ď ? Limited company
working with a defined community
Special additional features
ÂŁ
+ ď ?
working with a defined community 4/13
The Community Interest Statement •
Statement made as part of the application, form CIC36, outlining activities and specifying the community / communities which will
benefit •
The Community Interest Test is applied to the statement by the CIC regulator and approved or rejected based on “what reasonable people might think”.
•
A community must not be deeply involved in any form of political activity.
•
An annual CIC report must be made for public record which details activity to pursue its pre-specified community interest.
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Defining a community •
A section of the community, UK or abroad, who share a common characteristic that distinguishes them from other members of the community.
•
This community is expected to be wider than just the members of the CIC.
•
Examples: the residents of a town, the elderly, the young unemployed, people wishing to learn, preservation of culture/language, establishing a museum.
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The Community Interest Test This is a test of the motivation or underlying purpose of a company’s activities. It assesses: •
the range of activities in which it will engage, and that they reflect the company’s purpose
•
who will benefit, although not necessarily in every activity but as an overall purpose – e.g. sales that raise money and generate profit to be reinvested in the community. (Shareholders are allowed to benefit, but not at the expense of the community.) 7/13
Asset Lock •
Profits and assets must be used for the benefit of the community
•
Any assets transferred must be at full market value and can only be transferred to another asset locked body as specified in the articles of association.
•
The asset lock does not prevent the assets being used for normal trading, e.g. investing assets for the commercial benefit of the CIC and therefore its community.
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Dividends •
The cap on aggregated dividends available for distribution is 35%, set by the government
•
This is the maximum and is not obligatory
•
There are very specific guidelines on allowable dividends set out by government and subject to change
•
Unused capacity can be carried forward to subsequent financial years.
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Remuneration •
Directors can be paid for the work they do for a CIC
•
The rate of pay is not controlled by the regulator and is a matter for individual CICs to decide
•
The amount they are paid is reported for the public record and this can be challenged by stakeholders.
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Applying to be a CIC 1.
Form IN01 application to register a company
2.
Form CIC36 application to form a CIC, including community interest statement
3.
Memorandum of Association, (templates are available at
www.bis.gov.uk/cicregulator/forms-introduction/consitutionguidance/model-constitutions) 4.
Articles of Association, including asset lock nomination,
(templates at www.bis.gov.uk/cicregulator/formsintroduction/consitution-guidance/model-constitutions) 5.
A cheque for ÂŁ35 - ÂŁ20 Companies House, ÂŁ15 CIC regulator, 11/13
a simple application.
Advantages
Disadvantages
•
Can have control over decisions and be paid as a director within restrictions
•
More restrictions on activities than a normal company and have to work with a specified community
•
Profits and assets are used for the good of the community enhancing goodwill and supporting fundraising
•
Share-holders benefits are limited
•
Assets can only be transferred to another asset locked company
•
Less restrictions on trading activities than a charity
•
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Lighter governance structure than a charity
Less trust and foundation funding available than for a charity (particularly for CIC limited by shares)
•
Less tax and rates advantages than a charity (particularly for CIC limited by shares).
•
Less regulation and administration than a charity.
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Next steps For further information on this subject, please refer to the following resources: What is a social enterprise? Social Enterprise for the Creative Industries Choosing a Community Interest Company (CIC) as a
Legal Structure Setting Up a Company 13/13
Disclaimer: Cultural Enterprise Office is not responsible for any advice or information provided by any external organisation referenced in this document.