Iain Robinson of Slee Blackwell Solicitors explores Community Interest Companies, a new option for people setting up social enterprises.
A not-for-profit enterprise such as a playgroup or community centre can already be constituted in a number of ways, but all the choices have drawbacks. Trusts and sole enterprises leave founders personally exposed if things go wrong, charities have to meet strict tests and bear a heavy regulatory burden, and the public, especially donors, are uneasy about the profit motive of a limited company.
Recent legislative changes now allow founders another option, the Community Interest Company or CIC (pronounced ‘kick’) CICs are companies which, instead of benefiting shareholders or other members, benefit the community. They report to a regulator in a similar way that a normal company reports to Companies House but it’s much more ‘light-touch’ than a charity’s reporting requirements.
CICs have to use their assets to help the community, and cannot sell assets except to benefit the community. Nor can they make large distributions to shareholders. CICs can contract in their own name, however, which protects founders who have become directors.
Any company can become a CIC if it can show the regulator that the company is in the community interest. This is defined, in a fairly circular way, as being anything a reasonable person would think is in the wider interest of the community or a large part of it. The general public rightly associate CICs with social enterprise, and are broadly comfortable giving donations and assistance. Organisations which give grants are generally happy with them too.
Any CIC can still apply to become a ‘normal’ company, though, so banks are often reluctant to lend large sums.
Setting up a CIC might be a good idea if the purpose of the organisation does not quite merit charitable status. It could also be done if the founders wished to work more freely than charity law would allow, wanted some protection from the risks of personal liability, or wanted to show the social nature of the organisation without the heavy regulation of being a charity.