Community Interest Company

Community Interest Company (“CIC”)

Tony Forster

Community Interest Companies are a relatively new type of company that came into force in 2005. They have been specifically devised for social enterprises.

A CIC is designed for social enterprises that want to use their profits and assets for the public good.

A CIC and can chose any one of three company forms: a company limited by shares, a company limited by guarantee or a public limited company. The CIC status is superimposed on the company form.

CIC’s are bound by all existing company law and practice as well as specific requirements under The Companies (Audit, Investigations and Community Enterprise) Act 2004 and relevant regulations.

There must be “community benefit” and this is a requirement for a CIC. A company satisfies the test if a reasonable person might consider that its activities are carried on for the benefit of the whole community or a particular group in the UK or elsewhere.

A company which benefits only its members or employees but not the wider community will not satisfy the test. Not all the company’s activities need to benefit the community, for example, one that employs people at disadvantage might notproduce a product that in itself benefits the community.

All CICs:

Have an Asset Lock. CICs must ensure that assets are used to benefit the community. All assets must be permanently retained within the CIC and used solely for its community purposes, sold at full market value or transferred to another asset-locked organisation.

Will need to satisfy a Community Interest Test. The potential CIC will need to show that it will pursue purposes beneficial to the community

 Will have the option of adopting a structure and provisions to be able to issue shares, which may result in the payment of a dividend.

 Advantages:

A CIC will be recognised as having proven community benefit rather than private gain which is protected through the asset lock. This should assist an enterprise to gain support

Banks and other sources of finance will recognise the CIC status and this should             make such dealings easier.

CICs will make their activities known through a publicly available annual community  interest company report that will include what dividends, if any, have been paid.

A CIC may raise capital through the sale of shares. In order to encourage investment the CIC may be a company limited by shares or public limited company and have the ability to pay a capped dividend to shareholders. If you do not want to pay any returns you can be a company limited by guarantee

The asset lock will mean that on winding up any remaining assets will be preserved for the community rather than distributed to members

An organisation cannot be both a CIC and a charity.

You will need to register as a company, giving you the benefit of limited liability.

CICs will not enjoy any special tax status

CICs will be easy to set up, with all the flexibility, but with some special features to ensure they are working for the benefit of the community.

Tony Forster
tforster@metcalfes.co.uk
0117 9453 040

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