What is a Community Interest Company (CIC)?
Community Interest Companies (CICs) are a type of legal structure specifically designed for social enterprises that want to use their profits and assets for the public good. They are typically limited by guarantee and do not have shareholders, although some can be limited by shares. The primary focus of a CIC is to benefit the community rather than generate profit for shareholders.
Key Features
Members as Guarantors:
Members of a CIC agree to contribute a nominal amount (usually £1) towards the company’s assets in the event of its winding up. This means that the liability of each member is limited to the amount they have guaranteed.
Shareholders:
While most CICs do not issue shares and do not have shareholders, some CICs can be limited by shares. In these cases, shareholders may receive dividends, but the primary focus remains on achieving social goals and there is often a restriction on the level of dividend distribution.
This structure is ideal for organisations that do not seek to distribute profits to shareholders but rather reinvest any surplus back into the organisation.
Purpose-Driven:
CICs are established for non-profit purposes, such as charitable, educational, or community-focused activities. They exist to benefit the community and are driven by a mission rather than profit.
Governance:
The governance of a CIC is typically outlined in its Articles of Association. Directors of a CIC limited by guarantee are responsible for running the company and making decisions, while members (guarantors) have voting rights at Annual General Meetings (AGMs) and are responsible for their £1 guarantee.
Registration and Compliance:
CICs must be registered at Companies House and comply with the Companies Act 2006. They must also comply with the Community Interest Company Regulations 2005.
CICs must maintain a Register of Members, which includes all full members who are guarantors of the company.
Entitlement to Final Funds:
In the event of a Community Interest Company (CIC) being wound up, any remaining funds after settling all debts and liabilities are subject to the asset lock. This means that the residual assets must be transferred to another asset-locked body, such as another CIC or charity, ensuring continued community benefit.
The transfer of assets must either be made for full market value, to another asset-locked body specified in the CIC’s Articles of Association, to another asset-locked body with the consent of the Regulator, or for the benefit of the community. This ensures that the final funds are used for the community’s benefit and not distributed among the members.
Taxation:
A CIC is subject to corporation tax, VAT, and payroll taxes in the same way as a company limited by shares. This means that they must comply with all relevant tax regulations and ensure timely submission of tax returns and payments.
As dividends cannot be paid from a CIC, withdrawals by the operators of the company must be a salary. This can add to the overall tax burden, compared to a company limited by shares.
Benefits
Limited Liability:
Members’ liability is limited to the nominal amount they have guaranteed (or share capital unpaid), providing financial protection in the event of insolvency.
Flexibility:
This structure offers flexibility in terms of governance and operations, allowing organisations to focus on their mission without the pressure of generating profits for shareholders.
Community Focus:
CICs are often community-focused and aim to tackle social or environmental issues. They reinvest most of their profits in pursuit of their mission, supporting other businesses and the community.
Preferred by Grant Providers:
Grant providers often prefer to give funds to CICs (limited by guarantee) because no dividends can be paid. This ensures that the funds are used solely for the organisation’s mission and not distributed to shareholders.
Examples
Social Enterprises:
Social enterprises often use the CIC structure to address social or environmental challenges while operating as sustainable businesses. They focus on creating products or offering services that cater to the needs of the community.
Green Accountancy work with many Community Interest Companies (CICs). Key services include Company Accounts and Tax, VAT, Management Accounts, and Payroll. CICs are often grant-funded, which is a key area of our expertise. Our mission is to help purpose-driven entities have well-managed finance – often a perfect match to the needs of CICs. To find out more, do book a free online meeting.
