Community Interest Company Formation

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What is a Community Interest Company (CIC)?

Community interest company legislation introduced in 2005 defines the rules & regulations and establishes the legal framework for community interest companies. The main objective of a community interest company is to trade for the benefit of the community rather than earning profit for shareholders of the enterprise. It is a special type of non-charitable limited company formed primarily for the benefit of a community.

This is not the only business form for those who wish to start a social enterprise. You can also set up trusts, charities, standard companies, unincorporated associations or a charitable incorporated organization. It can be set up as private limited company by shares (Minimum one director, one shareholder needed) or private limited company by guarantee (Minimum Two directors or trustees needed) or public limited company.

Key Features of Community Interest Company

• Community Interest Company must comply with company laws & CIC laws.
• It should not deviate themselves from the social mission.
• It should be approved & regulated by CIC regulator.
• It is not strictly considered as “Not for profit organization” and can return profit to the investors. They must ensure that their main focus is community benefit rather than earning profit.
• Community interest companies are based on asset lock. It means that the assets & profits earned by the company should not be distributed as per the regulations of dividend capping. Profits earned must be retained by the company in order to benefit the community & its activities. Assets can only be transferred to another CIC or charitable organization.
• If a community interest company chooses their company to be limited by shares, they are restricted as per dividend cap - how much maximum amount should be paid to the shareholders (35% of distributable profits)

How do i set up a Community Interest Company?

In order to set up a community interest company, you need to do the following –

• Pay a prescribed fees
• Incorporate a constitution and define the following –
  1. Type of limited company
  2. Motive of your enterprise
  3. Who will be the director?
  4. How many directors or shareholders will be there?
• Make a community interest statement and define the following –
  1. How your activities will benefit the community?
  2. How this objective will be achieved?
• Pass a community interest test to satisfy CIC regulator that the activities you are doing are for the benefit of the community (you need to pass this test throughout the life run of CIC)
• Prepare a declaration that your community interest company will not be owned or controlled by a political party or a political organization.

Note–Individuals who wish to convert charitable organizations& existing companies to community interest companies need to follow different procedure & costs.