Are you passionate about making a positive impact in your community while maintaining control of your business? A Community Interest Company (CIC) could be the ideal solution for your social enterprise. In this article, we will dive deep into the concept of CICs, explain the benefits, and guide you through the formation process. By the end, you’ll be ready to take the next step in establishing your CIC.
What is a Community Interest Company (CIC)?
A Community Interest Company (CIC) is a unique type of limited company created for social enterprises that aim to dedicate their profits and assets to serving the public good. Unlike regular businesses that focus solely on maximizing profit for shareholders, a CIC exists to benefit the community or a specific group of people.
CICs are regulated by the CIC Regulator, ensuring they meet certain requirements and that their activities align with their social mission. This type of business structure allows entrepreneurs to balance doing good with the flexibility of running a business, offering services or products while reinvesting profits into their social causes.
Key Features of a CIC:
- Social Purpose: The company must work for the benefit of the community or a specific social cause.
- Asset Lock: CICs have an asset lock, meaning that any profits or assets generated by the company must be used for the community, not distributed to shareholders or members.
- Regulated Status: CICs are subject to regular oversight by the CIC Regulator to ensure compliance with their social objectives.
Benefits of Setting Up a Community Interest Company (CIC)
Establishing a CIC comes with several benefits, particularly for those dedicated to making a positive societal impact. Here are the main advantages:
1. Legal Structure for Social Enterprises
CICs are an excellent choice for individuals or groups running a social enterprise. They provide a clear legal structure that indicates your business’s commitment to community welfare, setting you apart from other types of businesses.
2. Limited Liability Protection
Like a limited company, a CIC offers limited liability, meaning your personal assets are protected if the business faces financial difficulties or legal issues.
3. Trust and Credibility
Being a regulated entity, a CIC tends to enjoy greater trust and credibility among stakeholders, investors, and the general public. Many funders, including government organizations, prefer supporting CICs over unregulated businesses because of their commitment to social goals.
4. Ability to Raise Funding
CICs can raise funds through a variety of means, including grants, donations, and investments from social impact investors. However, the asset lock restricts how these funds can be used.
5. Tax Reliefs and Exemptions
CICs can benefit from certain tax exemptions and reliefs, especially if they are also registered as charities. For example, you may qualify for Gift Aid, making donations to your CIC tax-deductible for donors.
How Does a CIC Work?
A CIC operates similarly to a regular limited company, but with some key differences, particularly in terms of how profits and assets are managed. Here’s an overview of how does it function:
- Asset Lock: This ensures that the assets of the CIC are used for its social purposes. In the event of dissolution, the assets cannot be distributed to shareholders or members, but must go to another community-based entity.
- CIC Reports: Every year, a CIC must file an annual report and confirm that it is continuing to serve the community interest. This includes a detailed statement on how the company has benefited the community.
- Directors and Shareholders: CICs have directors, and the company may also have shareholders. However, profits cannot be fully distributed to shareholders as with typical businesses; they must be reinvested in the social mission.
How to Register a Community Interest Company (CIC)
Registering a Community Interest Company (CIC) involves several structured steps that align closely with the process of forming a regular limited company but include additional considerations specific to CICs. Below is a detailed guide:
1. Select a Distinctive Company Name
Choosing the right name is essential for your CIC. It must:
- Be unique and not identical to any existing entity listed on the public register.
- End the company name with ‘Community Interest Company’ or the abbreviation ‘CIC,’ in line with official naming requirements.
Failure to meet these requirements will lead to rejection of your application by Companies House. To simplify this process, you can use our company name availability checker service.
2. Decide on the Right CIC Structure
Determine whether your CIC will be:
2.1 Limited by Guarantee (LGC): Ideal for non-profit organizations. Members don’t hold shares and contribute a nominal amount in case of liquidation.
2.2 Limited by Shares (LSC): Suitable for businesses that retain shares and pay dividends. However, profits must primarily serve social purposes.
3. Complete the Application for Company Registration
Registering your CIC begins with a standard online application through Companies House. You’ll need to provide:
- Full proposed company name
- Select whether your company will be limited by shares or by guarantee.
- Principal business activity
- Registered office address
- Adopted articles of association
- Director(s) details (and company secretary, if applicable)
- Subscriber (member) details
- Capital declaration (for share-based companies) or guarantee statement (for guarantee-based ones).
- Information about Persons with Significant Control (PSC)
This application forms the basis for registering your company with Companies House. Specific CIC-related requirements will be addressed in subsequent steps.
4. Prepare and Submit Form CIC36
This form includes the critical ‘Community Interest Statement,’ which outlines:
- Proposed activities of the company
- Purpose of the company and how it aims to serve the community
- How the company’s activities differ from similar commercial ventures
- How profits will be used to achieve the company’s goals
The CIC Regulator reviews this form to ensure your company meets the community interest test and qualifies as a CIC.
5. How to draft the Memorandum and Articles of Association?
These two documents form the legal foundation of your CIC:
- Memorandum of Association: Confirms that the founders agree to form the company or the entity and become its members.
- Articles of Association: Sets out how CIC will operate, including:
- Role of directors and shareholders
- Governance structure
- Asset lock clause, which ensures the company’s income and assets are preserved for its community objectives.
6. Submit Your CIC36 Form and Governing Documents
Submit the CIC36 form along with your Memorandum and Articles of Association to the CIC Regulator.
7. Register with Companies House
Once the CIC Regulator grants approval to your application, Companies House will officially register your CIC. Following registration, you must:
- Comply with filing requirements for annual accounts and tax returns.
- Uphold obligations to the CIC Regulator, such as filing an annual CIC report.
By following these steps, you’ll ensure a smooth and successful CIC registration process, setting a strong foundation for your community-focused endeavors.
CIC vs. Limited Company vs. Charity: Key Differences
While CICs share some features with both limited companies and charities, they are distinct in their structure and purpose. Let’s break down the key differences:
CIC vs. Limited Company
- Purpose: Limited companies can be formed for any legitimate business purpose, including making a profit for shareholders. In contrast, CICs must have a clear social purpose and reinvest profits into the community.
- Profit Distribution: Limited companies can distribute profits to shareholders, while CICs must reinvest their profits into their social mission.
- Regulation: CICs are regulated by the CIC Regulator, whereas limited companies are governed by general company law in the UK.
CIC vs. Charity
- Profit Motive: Charities are typically set up for the public benefit and cannot have a profit motive. While CICs aim to benefit the community, they can generate a profit and pay salaries to directors and staff.
- Tax Benefits: Charities enjoy more extensive tax exemptions, while CICs may have fewer tax benefits, although they can still benefit from some reliefs.
Can Your Business Be a CIC?
A CIC is ideal if your business is dedicated to a social cause and you want to create a sustainable business model around it. Whether you are setting up a social enterprise, a non-profit, or a community-focused business, a CIC could be the right structure. However, it’s essential to evaluate your business’s goals and ensure that a CIC aligns with your vision.
Forming a CIC with FormationsHunt
Starting a CIC is an exciting and impactful way to launch your business. At FormationsHunt, we offer an easy, fully online process to help you set up your CIC with all the necessary documentation and guidance.
Our CIC Formation Package Includes:
- CIC registration with Companies House
- Preparation of governing documents (Memorandum & Articles of Association)
- Filing of the CIC36 form with the CIC Regulator
- Name availability check
- Prestigious London-based registered office address
Final Thoughts
A Community Interest Company (CIC) is a powerful way to combine business with social impact. By creating a CIC, you can help address community needs while benefiting from the flexibility of a business structure. If you’re ready to get started with setting up your CIC, FormationsHunt can help you every step of the way.
If you’re unsure whether a CIC is right for your business or need expert assistance in registration, don’t hesitate to reach out to us.
Client Login
