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What is a Community Interest Company?

Have you come across the term CIC or heard of it? We have heard of the normal types of companies such as charities, limited companies and public companies. In this article I aim to expalin “What is a Community Interest Company” and the ins and know hows.

What is a Community Interest Company? Definitions

A community interest company is a type of company introduced by the United Kingdom government in 2005 under the Companies Act 2004, designed for social enterprises that want to use their profits and assets for the public good. 

Wikipedia

A CIC is a special type of limited company which exists to benefit the community rather than private shareholders.

https://www.gov.uk/set-up-a-social-enterprise

Introduced in 2005 in the UK, a community interest company is a type of company designed for social enterprises that want to use their profits and assets for the public good.

https://www.sumup.com/en-gb/invoices/dictionary/community-interest-company/

Advantages of a Community Interest Company

Access to certain forms of finance and Funding

CICs will attract some certain types of funding and grants which are only available to these type of organisations. Some people will only donate or give to these types or organisations too.

Limited liability Protection

Being a limited company, this provides an the element of security for those who own and run the organisation

Quick To set up

A community interest company is far way quicker to setup compared to the process of setting up a charity

Less Governance Requirements

Community Interest Companies are regulated by the CIC Regulator and so have fewer restrictions on trading activities than a charity

What is a Community Interest Company? Ariyel Academy
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What is a Community Interest Company

Disadvantages of a Community Interest Company

Restrictions of Assets

a CIC can only transfer assets for less than market value to another CIC or asset-locked body (such as a charity or a similarly asset-locked community benefit society)

Lack of Public awareness of the CIC model

The concept of a CIC is quite new and not well known and so many individuals are not be familiar with the community interest company model or form.

Restrictions on dividends

Only CICs limited by shares are allowed to pay dividends, and even then they are still subject to a dividend cap. As well as the standard limits on dividends under company law, only 35% of a CIC’s distributable profits in a single year can be paid out in dividends to the company’s shareholders (with a limited facility to carry forward unused dividend capacity to future years).

How to Set up a Community Interest Company

To set up a CIC, you’ll need:

  • a ‘community interest statement’, explaining what your business plans to do
  • an ‘asset lock’- a legal promise stating that the company’s assets will only be used for its social objectives, and setting limits to the money it can pay to shareholders
  • a constitution – you can use the CIC regulator’s model constitutions
  • to get your company approved by the community interest company regulator – your application will automatically be sent to them

The CIC regulator has guidance on setting up a CIC.

What is The difference between a Community Interest Company and a Charity?

Both CICs and Charities are similar in sturcture an d it would be necessary that we highlight the key differences between them.

A CIC is expetec to make a profit from its services whila charity is not intended to ma ke any profit form its services or work

A CIC will get most of its income from trade, selling something then reorienting the money into the social enterprise. A charity, on the other hand, will be almost entirely reliant on donations and grants.

another difference is that an organisation can only be a charity if it is established for exclusively charitable purposes for public benefit.

Examples of Community Interest Companies

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