Creative Economy Legal Forms -UK and its Community Interest Companies

Community Interest Companies - FAQ  Annotated

Social enterprises are diverse. They include local community enterprises, social firms, mutual organisations such as co-operatives, and large-scale organisations operating nationally or internationally. There is no single legal model for social enterprise. They include companies limited by guarantee, industrial and provident societies, and companies limited by shares; some organisations are unincorporated and others are registered charities." from ' Social Enterprise - a strategy for success'

A CIC is a new type of company, designed for social enterprises that want to use their profits and assets for the public good. CICs will be easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community.

"A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

Social enterprises are an exciting and fast-growing sector. Yet some of the legal forms were originally designed for completely different types of organisation. The Government wants to support the sector by creating a modern and appropriate legal vehicle and to help raise their profile.

What are the differences between community interest companies and charities?

• Charities must be established exclusively for charitable purposes, but a CICs can be established for any lawful purpose, as long as their activities are carried on for the benefit of the community


• Charities have certain tax advantages that CICs do not have


• In return for those advantages, charities are subject to more onerous regulation than CICs


• The CIC legal form was specifically designed to provide a purpose-built legal framework and a “brand” identity for social enterprises that want to adopt the limited company form


• CICs will be free to operate more “commercially” than charities (e.g. CICs limited by shares can pay dividends to individual shareholders, subject to a cap), but stakeholders in CICs will still have the assurance of community benefit provided by the asset lock and transparency about their activities ability through the community interest report

Why be a community interest company rather than a charity?

There is no doubt that charitable status is exactly right for many who wish to further charitable objectives and it is likely that most organisations operating for the public benefit (and who are eligible for charity status) will choose to be charities, not least for the fiscal advantages.

The sort of people who will want to set up a CIC will typically be entrepreneurs who want to do good in a form other than charity. This may be because:

• They are looking to work for community benefit with the relative freedom of the non-charitable company form to identify and adapt to circumstances, but with a clear assurance of not-for-profit distribution status.


• Members of the board of a charity may only be paid where the constitution contains such a power and it can be considered to be in the best interests of the charity. It means that, in general, the founder of a charity who wishes to be paid cannot be on the board and must give up strategic control of the organisation to a volunteer board, which is often unacceptable.


• The definition of community interest that will apply to CICs will be wider than the public interest test for charity.


• CICs will be specifically identified with social enterprise. Some organisations may feel that consequently this is a more suitable than charitable status.