Community Interest Companies (CIC) came about in 2004 and are regulated by the Community Interest Company Regulations 2005. A CIC is a company with objects designed specifically to operate for the benefit of the community. So they are not for the benefit of the owners of the company. They are not used solely for personal gain of a particular person or group.
CICs are specifically identified with social enterprise. Some organisations may feel that a CIC is a more suitable option than charitable status, primarily because of its flexibility and ‘light touch’ regulation.
A CIC can be Limited by shares or by guarantee. Its constitution must include an ‘Asset Lock’. This ensures the distribution of assets and profits can only be done in a prescribed way. They can either be retained within the CIC for community benefit or transferred to another similarly ‘Asset Locked’ entity such as another CIC or charity.
You won’t see many online incorporation agents offering CIC’s because unfortunately they have to be submitted for incorporation by post. This is because the CIC Regulator has to ensure that the objects of the company meet the ‘Community Interest Test’ and that the constitution contains the required ‘Asset Lock’. The formation process requires the submission of a Community Interest Statement for approval. The Regulator will also perform an on-going monitoring and enforcement role.
Formation documents are submitted to Companies House in the normal way, who in turn liaise with the CIC Regulator. The registration fee for a CIC is £35.00.
A company that is not currently a CIC can elect to convert to one. A CIC that is a private company can subsequently convert to a public one. A CIC can covert to become a charity or a community benefit society. A charity cannot be a CIC but it can convert to one or register a subsidiary CIC company.
Once a company has been registered as a CIC, it must continue to satisfy the community interest test for as long as it remains one. A company will need to consider:
the purposes for which it is set up;
the range of activities in which it will engage; and
who will be seen as benefiting from its activities.
The test is a test of the motivation or underlying purpose of a company’s activities. To satisfy the test a company must show that a reasonable person might consider that the ultimate objects of the company are the provision of benefits for the whole or part of the community. So everything that a CIC does should in some sense contribute towards achieving a purpose that is beneficial to the community.
For investors, the regulator sets a dividend cap. Recent changes see the returns payable to equity shareholders in CICs go from five percentage points over the base rate to 20 per cent a year, with no link to interest rates as there was previously.
Companies Direct are experienced in the incorporation and structuring of all styles of company, including those involved in social enterprise. To prepare and submit all the documents necessary to establish a CIC our normal fee is £250.00 + VAT.
Companies Direct can help you start a CIC. For further advice contact us via our website or by telephone on 01738 500400.
