There are now more than 14,000 community interest companies (CICs) in the UK and that number is expected to double by 2025. 28% are in the UK’s most deprived areas. Most pay the living wage, almost half are led by women and 30% have at least one black, Asian or minority ethnic (BAME) director.
Crucially, CICs are also holding their own financially; 57% grew their turnover in the 2017/2018 tax year, compared to 34% of SMEs.
At Griffin, we provide accountancy services for numerous CICs in Devon and the wider South West. We appreciate that CICs aren’t as widely understood as charities and standard companies, however, so we’ve answered some of the most common questions we get asked below.
What is a community limited company (CIC)?
CICs are limited companies that exist to benefit the community. A CIC can be either a company limited by guarantee (CLG) or a company limited by shares (CLS), but it has additional clauses in place to protect its overall purpose of helping the community.
What kind of organisations can become CICs?
Any size of organisation can become a CIC. The main requirement is that you have a clear purpose beyond profit. That could mean that you run a business that directly serves the community, such as an organisation that helps young carers. Or it could mean that you invest your profits in the community, such as a shop that raises funds for an environmental charity.
An organisation cannot become a CIC if it is used solely for:
- the financial advantage of a group of people
- political purposes
- the benefit of the employees, directors or members of a single organisation
Do community interest companies pay tax?
Yes, CICs pay tax just like any other company. They don’t enjoy the tax relief that charities benefit from. What effect that will have depends on what your organisation does and how much of its profits you plan to invest in the community, so we do advise that you speak to a specialist accountancy firm, such as Griffin, to get a clearer picture.
What are the main benefits of a community interest company?
Becoming a CIC cements the company’s purpose. As a CIC, you’re sending a clear message to employees, customers, local authorities and other organisations that your main aim is to be of benefit to the community. That may help you to attract business, and in some cases, you can apply for grants that you couldn’t if you were running a standard company. You can also apply for investment that you might not be able to attract as a charity.
In other aspects, a CIC is like any other company. Its directors can be paid salaries and (depending on the legal structure) are protected by limited guarantee and can receive capped dividends.
Community interest companies aren’t as heavily regulated as charities and they don’t have as many legislative hoops to jump through.
What are the downsides to a CIC?
Similar to charities, CICs have a lock on their assets, which restricts how they can distribute profits to members and shareholders. This can be seen as a benefit or a drawback, depending on the organisation. A community hall, for example, may well want to protect the property, while a small business may prefer more flexibility.
As mentioned, CICs don’t benefit from the tax breaks that charities enjoy.
Unsure whether your organisation would be better off as a charity or a CIC? Check out our blog post on CICs versus CIOs.
Can you sell a community interest company?
The short answer is, if you’re looking to start a business that you then sell on, you’ll probably be better off choosing another legal structure. A CIC’s assets have to be retained for community benefit. They can be transferred to another asset-locked organisation in some cases, such as another CIC or a charity. If your CIC is limited by shares, those shares may be able to be sold on for a profit, but it’s a lot more complicated to ‘sell’ a CIC than a standard company and may not generate the same level of returns.
Do organisations with a social purpose have to become CICs?
No, there are several legal structures you can choose from, including charity, co-operative or standard CLG or CLS. If you decide to go down the CLS route, you may want to visit Purposely. This free digital tool helps you to embed your organisation’s purpose in the company’s governing articles.
If you know you want to start a social enterprise but aren’t sure what legal structure to take, this guide by Social Enterprise UK might help.
Is there extra paperwork involved in running a CIC?
As a CIC, you’d need to submit your annual accounts and annual return, as you would if you were running any other type of company. However, you’d also need to file a community interest report. This is a public record and sets out how the CIC has benefitted the community and how it involved its stakeholders.
How do I set up a CIC?
CICs need to be registered with Companies House in the same way as other limited companies. However, there is some extra paperwork required, including Form CIC36 – the community interest statement. More information about creating a CIC can be found here. You may also find the documents on the Get Legal website of use.
We do recommend that you seek legal and accounting advice before setting up a CIC, as choosing the wrong legal structure for your organisation can prove very costly.
Griffin has a wealth of experience in supporting both CICs and charities. We’d be happy to answer any questions you have, so please do get in touch.