A Community Interest Company (CIC) fills the gap between social enterprise and traditional for-profit business. Furthermore, it’s designed for those with an interest in solving social problems. Taking on public contracts as well as private ones. It gives you more opportunities to make money from your work!
CIC’s were first established in the UK in 2005. Since then, they have grown in number and diversity. The CIC legal structure supports a wide range of activities. These range from small local projects to multi-million-pound health services. All industry sectors are covered in every area of the UK.
What are Community Interest Companies (CICs)?
They were established to help deliver benefit to communities. As companies they operate as businesses, however they do differ to from private companies. They can provide financial returns to investors. CICs reinvest funds to provide more products or services, not just reward shareholders.
The main purpose of CIC is to benefit the community rather than private profit.
Defining “community” in CIC
The essential feature of a CIC is that its activities are carried on for the benefit of the community. It is important that you have a clear picture of the community you intend to serve. A community for CIC purposes can either be the entire population or a definable group of people.
Moreover, the community you serve will be wider than just the members of the CIC.
There is wider public interest in community-based organisations and initiatives. Volunteers will just get on with and create their own Social Enterprises CICs without external assistance.
In most cases the community should be easy to define such as:
- NHS workers
- The young unemployed
Community interest test
The main purpose of a CIC is to provide benefits to the community, rather than to the individuals who own, run or work in them. This core principle is set out as the “community interest test.”
A company satisfies this test if a reasonable person might consider that its activities are carried on for the benefit of the community. All companies applying to be registered as CICs must provide the Regulator with evidence that they will satisfy the community interest test. To enable the Regulator to decide whether they will satisfy the test, applicants are required to deliver a community interest statement to the Registrar.
It tests your underlying motivation or purpose, and how this benefit its community. To determine whether you satisfy (or will satisfy) this requirement, consider:
- the purposes set up by your company;
- what range of activity it engages in; and
- who benefits from these actions.
What type of CIC can you be?
Limited by shares
Limited by shares companies are usually businesses that make profit. This means the company.
- is legally separate from the people who run it
- has finances separate from your personal ones
- you have shareholders
- any after tax profits can be kept by you
Limited by guarantee
“Limited by guarantee,” companies are usually “not for profit.” This means the company:
- is legally separate from the people who run it
- has a different set of finances than your personal ones
- there are guarantors with a ‘guaranteed amount’
- invests profits it makes back into the company
What is an asset lock?
The Asset Lock is a vital feature of Community Interest Companies (CICs). You must understand the concept before setting up a CIC as it has permanent long-term consequences. It is designed to ensure that your CIC assets (including profits generated are used for community benefit.
Above all, CICs are created to use their assets, income, and profits for community benefit. However, they must embrace special additional features:
They are subject to an ‘asset lock’ . This ensures that assets are kept within the CIC to support its activities and for community benefit . The main elements of the asset lock are as follows:
- Firstly, CICs must not transfer their assets below the full market value. It can do if it to another asset-locked body or for community benefit.
- Secondly, a CIC limited by shares is restricted to how much dividend is payable to private investors.
- Lastly, on dissolution of a CIC any surplus assets must be transferred to another asset locked body once all liabilities have been met.
CIC versus a charity structure
A CIC is created more quickly than the traditional charity. You can also get paid for your work if you are part of a governing body setting up and running an organisation that is a CIC.
It is not a charity, and a charity is not a CIC.
This is because not everything that benefits the community is charitable. it does not mean that you can automatically set up a charity even if your organisation benefits the community.
You must have specific aims (known as ‘charitable purposes’) to set up a charity.
You may wish to have a charity at some point in the future. If so, you can initially create a CIC, and convert that to a charitable organisation at some point in the future.
Above all, a CIC can be converted into a Charitable Company, and a Charity can have a CIC as a trading branch.
What is Social Enterprise?
Social enterprises are more than companies with a social conscience. They are businesses with business and social goals. Furthermore, they make an impact in society, while being financially sustainable. Private businesses don’t do this as efficiently because they have different objectives.
Social enterprises are different to private businesses. Because their objectives include a mix of business and social goals.
They provide income generation opportunities that meet the basic needs of people who live in poverty. They’re sustainable, and earned income from sales is reinvested in their mission. They’re not dependent on fundraising and donations. They look to sustain themselves over the long term. Their models can be expanded or replicated to other communities to generate more impact.
It is commercial in outlook so it can maximise its social good. Furthermore. this can include making maximum social impact and profits for co-owners.
Social enterprises and CICs are created by anyone with the desire and knowledge necessary to make changes happen.
In conclusion, the world is full of opportunities. Businesses can be started from anywhere and at any time. Moreover it’s always a good idea to get as much information on the business-type you want before taking steps in that direction. Find out what type of company best suits your interests by reading and watching this blog-vlog about CICs! If we’ve peaked your interest then watch every week for more informative videos like these ones.
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