Community Interest Company Guide: Forming a Community Interest Company

Starting a business with a social purpose requires a clear structure that supports your goals. A Community Interest Company (CIC) is designed specifically for social enterprises that want to use their profits and assets for the public good. In this guide, I will walk you through the essentials of forming a CIC, what it entails, and practical advice to help you decide if this is the right structure for your organisation.

Understanding the Community Interest Company Guide

A Community Interest Company is a special type of limited company introduced in the UK in 2005. It is intended for organisations that want to benefit the community rather than private shareholders. CICs can be limited by shares or by guarantee, but they must pass a community interest test and comply with specific regulations.

The key features of a CIC include:

• Asset Lock: This ensures that the company’s assets are used for the community and not for private gain.

• Regulation: CICs are regulated by the CIC Regulator, who oversees compliance with community interest rules.

• Profit Distribution: Profits can be reinvested in the community or paid as dividends, but there are limits on dividend payments.

  
  

Forming a CIC is a practical choice if you want to combine business methods with social objectives. It offers credibility and a clear legal framework for social enterprises.

Community Interest Company Documents on Desk

How to Form a Community Interest Company

The process of community interest company formation involves several steps. Here’s a straightforward breakdown:

1. Choose a Company Name

   The name must be unique and not misleading. It should reflect your social purpose clearly.

   
   

2. Prepare a Community Interest Statement

   This statement explains how your company will benefit the community. It is a key part of the application to the CIC Regulator.

   
   

3. Draft the Articles of Association

   These are the rules that govern your company. CICs have model articles available, but you can customise them to suit your needs.

   
   

4. Complete the CIC36 Form

   This form is submitted to the CIC Regulator along with your application. It includes your community interest statement and details about your company.

   
   

5. Register with Companies House

   You must register your CIC with Companies House, just like any other limited company.

   
   

6. Pay the Registration Fee

   There is a fee for registering a CIC, which is currently £65 if done online.

   
   

Once registered, your CIC must file annual accounts and a community interest company report to maintain compliance.

Contact Mike Farrell to discuss how we can assist on 07710141058 or email mike@businesslegal.ltd.uk

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Filling Out Company Registration Forms

What are the disadvantages of a community interest company?

While CICs offer many benefits, there are some drawbacks to consider:

• Limited Access to Capital

CICs cannot raise funds through share sales like traditional companies. This can limit growth potential.

• Dividend Caps

Dividend payments to shareholders are capped, which may deter investors looking for high returns.

• Regulatory Oversight

The CIC Regulator monitors compliance, which means additional reporting and administrative work.

• Asset Lock Restrictions

The asset lock limits how assets can be used or sold, which can restrict flexibility in managing company resources.

• Public Perception

Some stakeholders may not fully understand the CIC model, which can affect partnerships or funding opportunities.

Despite these disadvantages, many social enterprises find the CIC structure aligns well with their mission and values.

Key Legal and Financial Considerations

When forming a CIC, it is important to understand the legal and financial responsibilities involved:

• Legal Structure

Decide whether your CIC will be limited by shares or by guarantee. Limited by shares allows for shareholders, while limited by guarantee is often used by non-profits.

• Taxation

CICs are subject to corporation tax like other companies. However, they may be eligible for certain reliefs if they qualify as charities or community benefit organisations.

• Reporting Requirements

Annual accounts must be filed with Companies House, and a community interest report must be submitted to the CIC Regulator.

• Employment Law

CICs must comply with employment laws if they hire staff, including contracts, wages, and workplace safety.

• Funding and Grants

CICs can apply for grants and funding aimed at social enterprises, but eligibility criteria vary.

Contact Mike Farrell to discuss how we can assist on 07710141058 or email mike@businesslegal.ltd.uk