Community Interest Companies, (abbreviated to 'C.I.C'), are a new type of company available for incorporation after July 1st 2005. The Companies, (Audit, Investigations and Community Enterprise), Act 2004 ('the Act'), and The Community Interest Company Regulations 2005 made under the Act provides the legislative framework for CICs.

What is a Community Interest Company?

Community Interest Companies are companies that have been established for the greater good of the community. They are aimed at social enterprises that do not have charity status. The benefit of a Community Interest Company is that the company does not have any financial or growth restraints, as could be the case with a charity and maintains trust within the community which might be lost by trading as a private company.

A Community Interest Company can be set up in one of three forms:

• Private company limited by guarantee (not for profit)
• Private company limited by shares
• Public company

CIC's can be established for any lawful purpose, as long as their activities are carried on for the benefit of the community. Community interest is at the heart of the CIC and the Community Interest Test is what differentiates CICs from other not-for-profit organisations.

Who will want to set up a CIC

CIC's will be typically set up by entrepreneurs who want to do good in a form other than charity because:

• They are looking to work for community benefit with the relative freedom of the non-charitable 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 contains such a power and it can be considered to be in the best interests of the charity. It means that, in general, the founder of a social enterprise who wishes to be paid cannot be on the board and must give up strategic control of the organisation to a volunteer board, which is often unacceptable.
  
• The definition of community interest that will apply to CICs will be wider than the public interest test for charity.
  
• CICs will be specifically identified with social enterprise. Some organisations may feel that consequently this is a more suitable than charitable status

Advantages:

• Easy to setup
• Flexible form
• Can trade
• Useful for enterprises of all sizes
• Director can be paid
• Can take one of three company forms:
  
  • Company limited by guarantee
  • Private company limited by shares
  • Public company limited by shares
    
• Free to operate more 'commercially' than are charities
• Can be registered at Companies House in the same way as a normal company with the same incorporation documents
• The majority of CICs will have a similar relationship with the CIC regulator as companies have with Companies House
• There is no maximum number of members. The members of a company are the subscribers to the company's memorandum.
• Every private company must have at least one director.

Disadvantages

• An organisation cannot be both a CIC and a charity
• Can be undemocratic
• More regulated than charities
• Do not have certain tax as for charities
• Will not have the benefit of charitable status
• Will not be able to distribute profits and assets to their members - an asset 'lock'
• There are additional fees to pay to the CICs Regulator, as well as to Companies House.

To become a CIC, an organisation would need to satisfy the regulator that it's purposes could be regarded by a reasonable person as being in the community or wider public interest. It will also be asked to confirm that access to the benefits it provides will not be confined to an unduly restricted group.

A CIC limited by shares can issue shares that pay a dividend to investors, to raise investment. In order to protect the asset lock, the dividend on these shares will be subject to a cap set by the Secretary of State, which can be adjusted by the Regulator, (after consultation and subject to the Secretary of State's approval).

Regulator - an independent public office holder appointed by the Secretary of State for Trade and Industry.

Main duties:

• to consider applications to form a CIC
• to ensure that a CIC complies with its legal obligations
• to take enforcement action where serious infringements occur

The regulator also has an important role:

• in the development of CICs as a new company type
• in providing help and guidance to CICs, to those people considering setting up a CIC, and to business professionals advising CICs.

Community Interest Statements must be signed by all of the directors to confirm that the company will serve the community rather than operate for private profit motives. It must also describe the intend activities of the company.

The Governing Document:

The Governing Documents of a charitable company consists of two parts:

• The memorandum of association - contains the aims of the organisation, the powers it has to pursue them and the extent of member's liabilities;
• The articles of association - describe the company's rules, including its procedures for electing the management committee and keeping accounts.

Detailed guidance on Memorandum and Articles, including draft examples can be found on the CIC website:  www.cicregulator.gov.uk

Click to assess
Model Governing Document

Is there a 'specific' organisational structure a CIC must have?

Community Interest Companies are limited companies subject to general company law, like other companies registered under the Companies Act 1985.

A private company limited by shares or guarantee must have one member and any other company must have at least two members. There is no maximum number of members.

The members of a company are the subscribers to the company's memorandum, (who are deemed to have agreed to become members), and all other persons who have agreed to become members of the company. In a company limited by shares, members purchase shares, with their liability being limited to any amount owing to the company in respect of their shares.

In a company limited by guarantee, members agree to be liable to contribute a specified amount in the event of the company being wound up.

Every private company must have at least one director. Every other company must have at least two directors. Where a company has only one director that person cannot also be the company secretary, or a corporation whose sole director is a company secretary.

Who is the Regulator and how is he/ she selected?

The Act establishes the Regulator as an independent public office holder appointed by the Secretary of State for Trade and Industry. The appointment was subject to an open public recruitment process monitored by the Office of the Commissioner for Public Appointments.

John Hanlon, the first Regulator of Community Interest Companies, (CICs), was appointed on 1 April 2005. His powers are set out in the Act and regulations. The Act requires him to discharge his functions in accordance with good regulatory practice.

His main duties are:

• to consider applications to form a CIC;
• to ensure that a CIC complies with its legal obligations; and
• to take enforcement action where serious infringements occur.

The Regulator also has an important role:

• in the development of CICs as a new company type i.e. the brand; and
• in providing help and guidance to CICs, to those people considering setting up a CIC, and to business professionals advising CICs

Scheduled Charges

   The CIC Regulator (CREG)