What is a Community Interest Company, and how is it Different from a Charity?
Community Interest Companies (CICs) were introduced in 2005 in the UK to provide a flexible corporate structure for social enterprises, which are increasingly playing an empowering role for local communities and disadvantaged areas. 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.
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 the 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.
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.
The Asset Lock
In order to retain the 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.
Converting a limited company to a CIC
Limited companies may convert to a CIC in accordance with the Companies (Audit, Investigations and Community Enterprise) Act 2004 and the Community Interest Company Regulations 2005.
Resolutions effecting 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.
Do you need help incorporating or converting your existing company to CIC status?
Formations Direct has over 10 years’ experience in dealing with CICs and we can assist with the preparation and filling of all documents with the Registrar to ensure a speedy and hassle-free end result.
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