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Community interest companies

A community interest company (CIC) is a type of limited company that’s been specially designed for social enterprises.  Here’s the essential information you need about CICs. 

What are main differences between CICs and other types of companies and charities?

Unlike purely commercial companies, which exist to make profits for their owners,  community interest companies trade for the benefit of the community. Some social enterprises are charities, but having charitable status means they’re subject to strict regulation, for example, regarding trading activities. A CIC can’t also be a charity, but it can pass profits to a charity.

The lighter-touch regulations for CICs enable them to have more freedom in their day-to-day operations. CICs enjoy the advantages associated with limited companies, for example their members’ have limited liability. CIC’s also enjoy official recognition that they exist to benefit the community. All of this means that CICs are becoming an increasingly popular form of social enterprise.

What are examples of community interest companies?

Here are just a few examples of CICs. (Source: Office of the Regulator of Community Interest Companies and Department for Business, Innovation & Skills.)

Warm Wales (Cymru Gynnes)

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Warm Wales aims make sure homes have affordable warmth, while at the same time reducing the national carbon footprint.

It helps people connect to mains gas or renewable heating, insulate their homes and obtain entitlements. The company believes that its CIC status help it to gain recognition and build strong partnerships with local authorities.

http://www.warmwales.org.uk/

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Blues and Beers

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Blues and Beers started by raising funds to run a local festival celebrating live music, artisan beer and local food.

As the festival grew it became fully financed through ticket sales and sponsorship. Proceeds go to local youth development projects and other charities.

http://www.bluesandbeer.co.uk/

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Frame of Mind (Vocational Training)

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Frame of Mind (Vocational Training) offers picture framing and printing services, while at the same time providing training and wellbeing places for local adults with mental health issues, learning disabilities and dementia.

The business is funded through self-directed support payments from local social services, and sales of frames and digital printing.

http://frameofmind.uk.com/

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Good Green Fun aims to reduce the amount of waste going to landfill by enabling the reuse and recycling of second hand children’s clothes, toys, books, cots etc.

These are sold at affordable prices. Any profits that are not needed to cover the costs of running and developing the organisation are donated to local children’s charities.

http://www.goodgreenfun.co.uk/

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The residents of Metfield village responded to the closure of the last remaining village shop by opening their own community store.

As well as being a general convenience store for the benefit of local people it also it also sells local produce and provides an outlet for nearby suppliers. The store is a focal point for community life in offering information and a place for social interaction.

http://www.metfield.org.uk/

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The people of Glenelg feared that the likely closure of the Isle of Skye Ferry would lead to their village becoming a dead end.

So they set up a CIC, and with the help of grants bought the ferry. Most of the income now comes from ticket sales, with any profits being put back into the business.

http://skyeferry.co.uk/

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What are the key features of community interest companies?

The features of CICs include the following:

  • CICs need to comply with both company law and CIC law
  • CICs need to be approved and regulated by the CIC Regulator. CICs can’t deviate from their social mission
  • CICs are not strictly ‘not for profit’ – they can deliver returns to investors, but they must ensure that community benefit is put ahead of private profit
  • A CIC that’s chosen to be a company limited by shares (as opposed to limited by guarantee) is subject to a dividend cap, which restricts what can be paid to shareholders. This aims to ensure that the business is seen as an attractive investment opportunity, but at the same time making sure that most profits are retained within the business and used to benefit the community
  • All CICs are subject to an asset lock. This ensures that assets and profits (apart from those distributed according to the regulations on dividend capping) are retained within the company to support its activities, or are used to benefit the community. Assets can only be transferred in effect to another CIC or charity.

How do I set up a Community Interest Company?

To set up a CIC you need to:

  • Establish up a constitution: for example, confirming the type of limited company, who’s going to be a director, etc.
  • Make a community interest statement that says:
    • How your activities will benefit the community
    • How this will be achieved
  • Pass a community interest test: this involves satisfying the CIC Regulator that your activities are for the benefit of the community (you will have to continue to meet this test throughout the life of the CIC)
  • Makes a declaration that your CIC will not be owned or controlled by a political party or a political campaigning organisation
  • Pay a fee of £35.

Note: there are different procedures and costs for existing companies and charities who wish to convert to a CIC.

For forms, and step-by-step guides to registering a CIC go to the Office of the Regulator of Community Interest Companies page of the GOV.UK website.

What needs to go in a ‘community interest statement’?

This type of statement should go the heart of what a CIC is all about, as you’ll see from these examples. (Source: Office of the Regulator of Community Interest Companies and Department for Business, Innovation & Skills.)

“To work with others to alleviate fuel poverty and to provide homes in Wales with affordable warmth. In doing so we aim to make a difference to the everyday lives of people in Wales by making their homes more energy efficient, healthy, comfortable, durable and affordable.” Warm Wales

“Providing activities that benefit the Wallingford community – an annual Blues and Beer festival which provides locals with live blues and traditional draft beers; and raising money to support local youth development projects.” Blues and Beers

“To support employment and vocational/life skills training for socially excluded people in West Sussex through a sustainable picture framing service.” Frame of Mind Vocational Training

“To reduce the number of children’s items going into landfill in the Forth Valley area, whilst providing the local community with an affordable source of good quality, second hand children’s toys, clothes and equipment.” Good Green Fun

“Benefitting the local economy and local people through the provision of local produce, employment and work experience opportunities, while also acting as a social, community hub for local people.” Metfield Stores

“To run the Isle of Skye ferry in the interest of the community.” Isle of Skye Ferry

What are the ongoing requirements of a Community Interest Company?

As with ordinary companies, a CIC needs to deliver annually a copy of its accounts, and an annual return with a £15 filing fee.

Alongside its accounts it also needs to send an annual CIC report with a £15 filing fee, which at a minimum details the following:

  • What it’s done to benefit the community
  • How it’s consulted its stakeholders on its activities
  • Any dividends declared or proposed on shares and performance related interest paid and their compliance with the capping rules
  • Information on the transfer of assets.

A model of the CIC Report is available from the Regulator.

Should my CIC be limited by shares or by guarantee?

Limited by shares

If you set up your CIC as one that’s limited by shares, you and any other owners, are only liable up to the value of the shares each of you have. In a normal limited company each shareholder can receive a proportion of the profits (as a ‘dividend’). In a CIC limited by shares things are similar, but the dividend payments are capped.

Limited by guarantee

If you set up your CIC as one that’s limited by guarantee, there are no shares. Instead there will be ‘members’, each of whom guarantee that they will be liable for the company’s debts up to a certain sum – often just £1. As there are no shareholders, there are no dividend payments.

Most CICs are limited by guarantee. Some funding bodies, including local authorities, will only fund CIC’s that are limited by guarantee because they view the practice of individual receiving dividends as inconsistent with the aim of benefiting the community. However, not all CICs are limited by guarantee; if the people behind a CIC feel they can attract investors who are looking to receive dividends – albeit ones that are capped – they may choose to set up a CIC limited by shares.

Note: the CICs featured in the above section, What are examples of community interest companies? are a mixture of CICs limited by shares and limited by guarantee.

To what extent should I rely on external funding for my CIC?

A CIC may need donations, grants or loans to get started, but it should look to stand on its own two feet as soon as it can. Funders are unlikely to provide money unless they believe the business can generate an adequate income before too long. And of course, if you’ve set up a CIC limited by shares, with the express intention of attracting investors, they’ll be keen to see a return. Whatever type of CIC you may have in mind, remember that fundamentally it has to be a good business. 

 

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