Community Interest Company
|Who controls it?||Board of Directors|
|What is the governing document?||Memorandum and Articles of Association|
|Who is the regulator?||Companies House and the CIC Regulator|
|Does it have limited liability?||Yes|
|What sources of finance are available?||Grants (though not as freely available as to charities), Loans, Equity Finance (if an CIC CLS)|
|Is charitable status available?||No|
The community interest company (CIC) was developed in order to address the lack of a legal vehicle for non-charitable social enterprises. Both non-charitable registered societies and the existing company forms were insufficient solutions as they did not allow for a lock on assets (although since 6 April 2006 this has changed for registered societies which are non-charitable community benefit societies). Charities (including charitable registered societies) were not suited to social entrepreneurs who wished to both control the organisation and receive a salary from it.
CICs are types of company. They may be limited by shares or by guarantee and they may be plcs. Certain companies are excluded from being community interest companies; these are ones which are political parties, are controlled by political parties or are engaged in political activities. The rules regarding what are political activities and the extent to which a CIC may engage in such activities are similar to the rules regarding charities and political activities. Charitable companies cannot also be CICs.
CICs operate in a broadly similar way to normal companies, except in certain aspects described below:
Just like ordinary company limited by shares (CLSs) and company limited by guarantee (CLGs), a CIC’s constitution is its Memorandum and Articles of Association. In addition, the CIC legislation requires that the Memorandum and Articles of Association of a CIC must contain certain protections. Model constitutions for different types of CICs can be found on the CIC Regulator’s website or in the precedents section of this website.
The principal feature of a CIC is that it contains a lock on its assets. This prevents profits being distributed to members or shareholders other than in certain circumstances. A CIC is obliged to pursue the community interest and must report on how it does this to the CIC Regulator.
A CIC is registered with Companies House in the same way as a normal company. However, there is one additional form to complete, which contains: a statement that the CIC is pursuing the community interest (including a description of the community and how its interest is pursued); and a declaration that the company is not an excluded company. Companies House will pass the application to the CIC Regulator who will assess whether the ‘community interest test’ has been passed. If it has, the CIC Regulator will return the application to Companies House, which will then incorporate the company. There is a small fee for registering a new CIC.
A normal CLS or CLG can be converted to a CIC. It would need to amend its constitution appropriately and then submit the required forms to Companies House.
CICs are regulated by the CIC Regulator and it is intended that the regulation should be ‘light touch’. However, the CIC Regulator is committed to responding to complaints from stakeholders and has considerable powers to act to protect the community interest. A CIC is required to file a community interest report each year. This report must include details of the remuneration of directors, dividends paid on shares and interest paid on certain types of loans. It must also explain how it has pursued the community interest and how it has involved stakeholders.
A CIC limited by shares or guarantee will be able to accept grants and take out secured and unsecured loans in the same way as a normal company. Interest rates on CIC borrowing must be at normal commercial rates, and performance-related interest is restricted. A CIC limited by shares will also be able to obtain equity finance. However, there are limits on the return that may be paid to investors. In the case of a loan where the interest payable is performance related, the interest cap is currently 20% of the average amount of the company’s debt in previous year (this cap was increased in 2014 and older loans may still be subject to a lower cap).
There is a cap in respect of dividends:
CICs have a maximum aggregate dividend cap that ensures that the profit distributed by the CIC must not be greater than 35% of its total profit. There are worked examples in the CIC regulators website explaining how this applies.
If the shares are bought back by the CIC from the investor they can only be bought back at the paid up value of the share stated in the articles, which is the nominal value of the share together with any premium paid to the company.