Benefits of forming a CIC
A community interest company (CIC) is a limited company which exists to benefit a community or to pursue social good. It is a useful vehicle for philanthropic entrepreneurs who want to use business and enterprise as a force for good and to bring about change in their community.
Freedom of Running a CIC
Community interest companies allow an individual or group to run their business with the relative freedom of the familiar company framework without either private benefit or charity status. It also alerts potential funders and partners that this is a business that provides real and tangible benefits to a community, while missing out on the extra layer of the governance required of a charity.
Before a CIC is approved by the Regulator, there needs to be clear evidence that the company’s activities are carried out for the benefit of the community and that assets will only be used for social objectives while setting limits on money paid to shareholders.
As of March 2019, CICs can now be incorporated online. This makes it easier to set up and reduces incorporation time, now taking as little as two days. Even though CICs are limited companies, once it is formed, the company name must end either in CIC or community interest company, rather than limited or ltd.
A CIC is subject to company law, and must therefore file annual accounts and returns with Companies House.
Benefits and Challenges of CICs
One key advantage of CICs is that they offer limited liability, which means that unless there is fraud or other serious wrongdoing, the amount shareholders lose if the company fails is limited.
If an individual decides to create a CIC that is limited by shares, dividends can be paid to shareholders. However, this is subject to a cap of 35 per cent of distributable profits. In the second blog post in this series, we discuss the factors to consider when deciding whether to create a CIC limited by shares or limited by guarantee.
CIC’s Assets are locked in.
A fundamental feature of CICs is the asset lock, which ensures that the company’s assets are used for the benefit of the community. If an owner wishes to transfer assets out of a CIC, it can only do so to another asset-locked body like a charity, another CIC or to benefit the community in some way.
On the other hand, there are currently no tax reliefs for CICs. There is also a perceived lack of prestige in comparison to a registered charity when it comes to raising funds. However, Social Enterprise UK (SEUK) is seeing more and more success with its government-backed Buy Social Corporate Campaign (BSCC), which urges corporates to partner with social enterprise organisations. In the first three years of this campaign, a total of £65.2 million was spent with 250 social enterprises.
Some assume that most CICs are start-ups. In fact, spin-outs (or breakaway arms) of the NHS and other local authorities – such as health, youth services, leisure and other public sector areas – are also converting into CICs.
While an organisation cannot be both a charity and a CIC, a charity can partner with a CIC or create a CIC as its trading arm, for example to run a charity shop.
Political parties, its subsidiaries and political campaigning groups are forbidden to become CICs.
You can find out which CICs exist in your area by visiting the interactive map on SEUK’s website.
The importance of legal advice
The decision to form a community interest company should be taken very seriously, because once it is set up, the only way out is to dissolve the company and cease to exist or convert the CIC into a charity. All assets will need to be passed on to a nominated charitable organisation. It is therefore strongly recommended that an individual gets legal advice before forming a CIC.
At KG Accountants we provide a cost-effective, high value solution to meet all of your CIC needs. if you need to register a new CIC then look no further!
All our CIC fees are fixed.
By giving you a fixed and competitive price, we can take the worry away when it comes to running your CIC; allowing you to concentrate on running your organisation.
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