A new Company Structure for Social Enterprises
Company legislation was never designed for community and voluntary sector organisations whose ethos
is 'not-for-profit' (or more precisely 'non-profit-distributing'). Social enterprises, in particular,
have no legal structure designed specifically for them and tend to register as
a 'Company Limited by Guarantee without Share Capital', sometimes as a 'Company Limited by Shares',
or go down the co-operative route to incorporate as an 'Industrial and Provident Society'.
The 'Community Interest Company' was initially proposed September 2002 by the UK Government's Strategy Unit
and the idea became a part of the 'Companies (Audit, Investigations and Community Enterprise) Act' which
became law in October 2004. Its main provisions will came into force in July 2005 and the first CICs
were registered soon afterwards.
The new legal entity is designed for small scale social enterprises, which are established for community benefit,
and which use their assets for community purposes (in perpetuity). In addition, CICs will have the ability to
raise funds by issuing shares.
A Community Interest Company is primarily a registered company but with additional features.
The company can be a Company Limited by Shares, a Company Limited by Guarantee without Share Capital or
even a Public Limited Company. CIC status can be regarded as an additional 'wrapper' around the basic
company constitution and structure. (This is similar to charitable organisations first registering as
companies limited by guarantee and then seeking additional charitable status 'on top'.)
This structure enables organisations to work within the well-established company framework
without having either charitable status or the commercial motive of profit distribution.
Key Features of the Community Interest Company
1. The 'Asset Lock'. This is a restriction on distributing profits or assets to members.
Importantly, this asset lock applies in perpetuity. (In the case of a company limited by guarantee
without share capital, though there are no shares through which to distribute dividends, the
constitution can be changed at a later date to distribute profits to members). If the organisation
ceases to be a CIC, remaining assets cannot be distributed to members but must be used for community benefit.
2. The 'Dividend Cap'. A CIC which is incorporated as a company with shares is able to raise funds by
issuing shares, but the dividend payable on shares will be subject to a cap, set by the Regulator, in order to
protect the company's assets. The Regulator will set the dividend cap as a percentage of the amount paid up
on the relevant share.
3. The 'Community Interest' test. The CIC must satisfy the regulator that the company's activities
are in the interests of the community. (The legislation states that "a company shall satisfy the community
interest test if a reasonable person might consider that its activities are being carried out for the benefit
of the community".)
4. The Community Interest Annual Report. A CIC is obliged to publish an annual report which
demonstrates how its activities have been for the community benefit and how it has involved stakeholders
in its decisions. The report must contain details of any shareholders, dividends paid, and directors'
remuneration. The report is submitted annually to Companies House and is held on the public record.
There are no particular tax benefits for CICs (such as those given to charities).
Charities. A company cannot be both a CIC and a Registered Charity. However charities in
England and Wales will be allowed to convert into CICs with the permission of the Charities Commission.
Charities will also be able to establish CICs as subsidiaries.
Copyright © David Parrish. 2006. All rights reserved.
Note: This web page is not intended to provide comprehensive coverage of the subject, merely a brief introduction to provoke thought and to lead to a more in depth understanding and application of the topic, either through further reading - or from me as your management consultant, executive trainer or personal coach in a consultancy project, training course, workshop or seminar.