Community interest company

New legal structure for social enterprises


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About the project Edit

A Community Interest Company (CIC) is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or community, rather than being driven by the need to maximize profit for shareholders and owners.

The primary core features of any company holding CIC status are two fold:

- Assets owned by the company are held in an asset lock which secures those them to applications for the good use of community.
- Limitations applied to dividend and interest payments made to shareholders and financiers ensure that a profit can be made, but the primary focus remains on achieving benefits for the community

In what ways is this project unique and creative? Edit

Regular limited liability companies that do not have charitable status find it difficult to ensure that their assets are dedicated to public benefit. There is no simple, clear way of locking assets of such a company to a public benefit purpose other than applying for charitable status. The community interest company intends to meet this need.

What is the social value of this project? Edit

A CIC has to carry out activities that fulfill a community purpose. This is defined when an application is made to set the CIC up. There are many purposes that meet the so-called "community interest test". These range from promoting the healthcare of residents of a particular community to promoting climate change awareness programmes or reducing greenhouse gas emissions.

A CIC also has a "lock" on its assets. This prevents profits from being distributed to its members or shareholders other than in certain limited circumstances. It also means that all assets must be used for the community purpose or if they are sold, open market value must be obtained for them and the proceeds used for community purpose. In addition, if the CIC is wound up, its assets must be transferred to another, similarly asset-locked body.

What is the potential of this project to expand and develop? Edit

CICs are diverse. They include community enterprises, social firms, mutual organisations such as co-operatives and large-scale organisations operating locally, regionally, nationally or internationally.

There is no single legal model for social enterprise. They include companies limited by guarantee, industrial and provident societies, and companies limited by shares. Some organisations are unincorporated associations while others are registered charities.

The range of industries and markets that CICs create is as varied as the economy itself. The majority are currently within traditional third sector activity areas such as health and social care, education and community services; however, there is an ever increasing number trading in traditional private sector activities such as property, financial and other professional services.

To represent the CIC Community, an association (known as the CIC Association) was launched on the September 9, 2009, with 1700+ members as of January 2012.

What was the triggering factor of this project? Edit

CICs were developed to address the lack of a legal vehicle for non-charitable social enterprises across the UK. A community interest company (CIC) is a new type of company introduced by the United Kingdom government in 2005 under the Companies (Audit, Investigations and Community Enterprise) Act 2004, designed for social enterprises that want to use their profits and assets for the public good. CICs are intended to be easily set up with all the flexibility and certainty of the company form, but with some special features to ensure that they work for the benefit of the community.

Available since 2005, there are now over 6,000. CICs vary in size from tiny community-based organisations to multi-million pound enterprises. Their areas of operation include: physical well-being, radio and television, the arts, education, and health and social work.

Fundamentally, CICs are normal companies. They can be established either as companies limited by guarantee (CLG), of which about three-quarters are, or companies limited by shares (CLS). However, they have some unique and important additional features to safeguard their social mission.

What is the business model of this project? Edit

Both individuals and companies can invest in a CIC; however, are subject to certain rules that regulate this. A CIC can be financed by loans or bonds though there are limits on the amount of interest that can be paid if the CIC agrees to pay interest at a rate linked to the CIC's financial performance. A CIC that is a CLS can issue shares, but if the CIC buys back those share,s only the capital paid for the shares can be repaid pound for pound with no uplift. In other words, all capital gains on buyback will belong to the CIC and not to shareholders or members. However, there is no restriction on the price at which shares in a CIC can be sold to somebody else.

Where the CIC is a CLS, the payment of dividends is permitted within defined statutory limits, currently 5% above the Bank of England base rate. There will also be a ceiling on the amount of a CIC's profit that can be distributed by way of dividends, currently 35%. These limits are currently being reviewed by the CIC regulator.

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