Frequently asked questions
What is a Community Interest Company (CIC)
A community Interest Comany (CIC) is a type of company designed for Social Enterprises that want to use their assets and any profit they make for the public good
CICs are set up with the flexibility and certainty of the company form but with special features to ensure that they are working for the benefit of the community.
What is a social enterprise?
A social enterprise is a business with mainly social objectives whose surpluses are reinvested for that purpose in the business or in the community, rather than to maximise profit for shareholders and owners.
Social enterprises tackle a wide range of social and environmental issues and operate in all parts of the economy. By using business solutions to achieve public good, the Government believes that social enterprises have a distinct and valuable role to play in helping create a strong, sustainable and socially inclusive economy
What was wrong with existing legal forms?
Companies that did not have charitable status found it difficult to ensure that their assets were protected for public benefit. There was no simple, clear way for social enterprises to protect their assets other than applying for charitable status. The community interest company form meets this need. The model is transparent, flexible, clearly defined and easily recognised.
What does a community interest company do?
Community interest companies (CICs) are companies pursuing social objectives, such as:
• community development and inclusion
• environmental improvement
• fair trade
• support services etc
Social enterprises are playing an increasing role in:
• delivering new, innovative services at local level
• empowering local communities and
• regenerating disadvantaged areas.
What are the differences between community interest companies and charities?
Charities must be established only for charitable purposes.
Community interest companies (CICs) can be established for any lawful purpose, as long as their activities are carried on for the benefit of the community.
Charities have certain tax advantages that CICs do not have, which means charities are more heavily regulated than CICs.
The CIC legal form was designed to provide a purpose-built legal framework and a “brand” identity for social enterprises that want to adopt the limited company form.
CICs are free to operate more “commercially” than charities.
But stakeholders in CICs will still have the assurance of community benefit provided by the asset lock and transparency about their activities through the annual community interest report.
Why be a community interest company rather than a charity?
There is no doubt that charitable status is exactly right for many who wish to further charitable objectives and it is likely that most organisations operating for the public benefit (and who are eligible for charity status) will choose to be charities, not least for the fiscal advantages.
The sort of people who want to set up a CIC are typically entrepreneurs who want to do good in a form other than charity. This may be because:
• They are looking to work for community benefit with the relative freedom of the noncharitable company form to identify and adapt to circumstances, but with a clear assurance of not-for-profit distribution status.
Members of the board of a charity may only be paid where the constitution allows. It must be in the charity’s best interests and they may only be paid where they provide a service to the charity. Generally, this means they must give up strategic control of the organisation to a volunteer board, which is often unacceptable.
• The definition of community interest that applies to CICs is wider than the public interest test for charity.
• CICs are specifically identified with social enterprise. Some organisations may feel that consequently this is more suitable than charitable status.
What is the ASSET LOCK?
An “asset lock” is a way of ensuring that the assets of a company or society can never be cashed in by or transferred to private individuals or other companies for their own advantage.
An asset lock means that:
While the company or society is still trading it must use its assets for a specific community benefit and may not transfer them to any person or organisation that will use them differently
If the company or society is dissolved, any cash or other assets remaining after creditors have been paid may not be transferred to the members
Instead the assets must be transferred to another company or society that has a similar asset lock