A UK CIC, introduced in the United Kingdom in 2005, is a type of non-charitable company designed for social enterprises that use their profits and assets for the public good.
A CIC reinvests its profits to achieve its social objectives rather than maximising profit for its shareholders or owners.
To become a CIC, a company must be registered with Companies House with a statement of its social goals and a legal declaration that its assets will only be used for these purposes. As a result, the amount of dividends or performance-related interest that a CIC can pay its members or investors is strictly limited.
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Thus to set up a CIC, you must provide:
1. A 'community interest statement' that explains what your firm plans to do.
2. An 'asset lock' is a legal promise that the company's assets will only be used for its social objectives and that the amount of money it can pay shareholders is strictly limited.
The company’s memorandum and articles must satisfy the community interest test.
A CIC must submit an Annual Report to the CIC Regulator every year, mentioning how it is meeting its social objectives and engaging with its stakeholders.
The CIC Regulator may investigate a community interest company if it is no longer acting in the best interests of the community or fails to comply with the asset lock.
A CIC is intended to benefit its target community. It is not motivated by profit. As a result, a CIC cannot be converted into an ordinary limited company in order to profit. If desired, a CIC can be converted into a charity.
Also read: Do I need a UK Business Bank Account for my UK Company?
A community interest company vs a charity
Charities depend on grants, donations, and fundraising for a large proportion of their income, a community interest company does not depend solely on these sources of income. Contracts, trading income, and grants are all sources of income for a CIC. As a result, while charities typically deliver time-limited projects that depend on trusts and foundations for funding, CICs have products and services that they can trade independently from other funding or grants that they receive.
A Community Interest Company can make a profit or have a surplus, whereas a charity is considered 'not-for-profit'. A CIC is expected to reinvest its surpluses to its social objectives, but it can also pay a proportion of its profit to owners or investors in the form of dividends.
Charities, on the other hand, are far more restricted in how they can spend their surpluses, and the money must be spent on specific items. For example, a charity's surplus funds may be expected to be used to purchase a new building.
CICs are specifically associated with social enterprise, some people may believe that this is more appropriate than charitable status.
Furthermore, CICs allow owners to identify and adapt to social circumstances while still maintaining non-profit distribution status, allowing them to work for community benefit with relative freedom.
Also read: UK Company Formation - Best Company Formation Agent UK
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