Advantages and disadvantages of a community interest company (CIC)

When you’re passionate about a social purpose, you might consider forming a Community Interest Company (CIC).

A CIC’s principal goal is to benefit a community rather than turn a profit for shareholders, but like any business model, it’s got its pros and cons.

So, let’s dive into the specifics of CICs and whether they might be the right choice for your venture.

Compared to a limited company, a CIC provides several advantages:

The Upsides of a Community Interest Company (CIC)

1. Crystal-clear commitment to societal objectives: CICs stand out because they highlight a firm commitment to a community cause, creating public trust and investor confidence.

2. Access to unique funding opportunities: Some donors prefer giving to CICs or charities, giving these organisations potential access to different finance sources.

3. Convenience and speed of establishment: CICs can be established much more quickly than charities by submitting a single application to Companies House, which greatly speeds up the procedure.

4. Less restrictive governance: CICs are subject to less restrictive ongoing governance than charities, allowing them to concentrate more on their social objectives and adopt a more businesslike strategy to achieve their goals.

5. Operational flexibility and strategic control: The CIC structure, which is less typical in charitable organisations, enables founders to maintain control and be fairly compensated for their work.

6. Wide range of social goals: CICs have more social goals at their disposal than charities do. This adaptability frequently better fits the particular emphasis of social enterprises.

7. Continuity of purpose: A CIC has its own legal status and continues to operate until it is dissolved or turned into a charity, ensuring the long-term impact of its social projects.

While these benefits present a positive image, it’s important to weigh them against certain potential disadvantages of the CIC model.

Community Interest Company (CIC) Disadvantages

1. Incorporation requirements: To register a CIC, you must do two things: first, register with Companies House; second, have your application reviewed and approved by the CIC Regulator.

2. Ongoing compliance requirements: CICs are required to file annual reports and have current company records.

3. Limited tax relief: Unlike charities, CICs are not eligible for as many tax breaks, which may limit the amount of money they may raise for charitable causes.

4. Funding restrictions: CICs are not eligible for several grants and funding programmes that are only available to charities.

5. Less widespread public recognition: The CIC model is less well-known than charities, which could affect the participation of donors and volunteers.

6. Limited payouts: CICs are only permitted to pay a certain amount of dividends, which may put off prospective investors.

7. Constraints on asset use: The ‘asset lock’ feature of CICs restricts how assets can be used and disposed of, which might feel limiting for some businesses.

8. Additional governance responsibilities: CICs have to submit an annual Community Interest Company Report to the CIC Regulator in addition to regular reporting to Companies House and HMRC.

9. Conversion challenges: If a CIC proves unsuitable, converting it into another structure can be challenging.

Why it might be a good idea to get a specialist, like KG Accountants, to do it for you

Deciding on the right structure for your social enterprise requires a careful balance between your organisation’s needs, its mission, and the practical considerations of running a business. It’s always a good idea to seek professional advice tailored to your specific situation.

At KG Accountants, we’re experts in helping businesses like yours make these crucial decisions. We’re ready to chat about whether a CIC is right for your venture.

Remember, the best choice will depend on your unique circumstances and long-term goals. Whatever you decide, make sure it’s a structure that allows you to fulfil your social mission while managing a successful organisation.

If you need help with the conversion, give us a call Call us today on 0207 953 8913 or complete our enquiry form in order to book  a FREE initial CIC consultation.

Categories: Advantages, Community Interest Companies

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