Setting up a Community Interest Company (CIC) has many advantages over either being a normal corporation or setting up a charity.
A CIC is a hybrid between companies and charities in that it’s a company with a social mission, but it also allows the trustees to be paid, unlike a charity. It’s ideal for the entrepreneur that would like a company that has a mission, but also one that allows them to pay the bills.
What a CIC can’t be
A CIC is restricted from certain activities that make sense.
- Can’t be set up for an unduly restricted group. For example, you couldn’t set up a CIC for one family or for a group that’s miniscule.
- Can’t be politically motivated. You can’t set up a CIC for a candidate, a party, or a cause.
- Can’t be a charity. This means that you will pay taxes and operate, in most ways, as a for-profit company.
- Must be for lawful activities. A CIC can’t be set up to operate an illegal business of any kind.
Community Interest Companies Vs Charity
A charity must use all its earnings and assets for its mission. A CIC can distribute up to 35% of its profits to trustees, such as the directors.
While a CIC pays taxes that a charity does not, the CIC has liability protections that charities are not afforded. This can make it a safer structure for some activities.
Forming a CIC is less expensive and faster than creating a charity. The assets of a CIC are “locked,” meaning the principals can’t simply distribute them, but by being locked, it helps to ensure the CIC can serve the community for longer. If the CIC is ever dissolved, the assets must be transferred to another locked asset company, preserving the efforts and value of the CIC.
Charities are under constant audit. A CIC has greater leeway to distribute funds and, while required to file taxes and accounts every year, has a lower burden of documentation.
The CIC structure is flattened, allowing for just one to three directors, as opposed to a charity that requires a minimum of three.
In the CIC structure, the directors can be paid by the company. This is where the hybrid design resembles a normal company.
Where a normal company can pay out any dividend amount it wants and charities can’t pay out any dividends, the CIC has a capped dividend.
There are a couple of rules:
- The maximum aggregate value of dividends paid can’t be over 35% of the distributable profits of the company.
- If there is a surplus in the dividend cap one year, it can be carried forward for up to five years.
Understanding a CIC
If you’re considering setting up a charity or a CIC, it makes sense to get advice from experts who can explain how these two structures can affect your organization’s goals and missions. While a CIC is easy to set up, it’s important to make sure that you’ve set it up correctly and that it will allow you to accomplish your goals in the long-run.
How we can Help
As one of the the leading CIC Formation agents in the united kingdom, We can get you through the process with ease. And, we also provide an extensive variety of post incorporating accounting services.
Our services span every step of the process. So don’t stress out, let us help you.
Please call us at 0207 953 8913 with any questions you have. Or, fill out our form online for a free consultation!