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August 15th 2013 / BY: Wisteria

When may a Community Interest Company be relevant?

A Community Interest Company (CIC) is a business structure designed for those wishing to benefit the community, rather than solely the members or officers of the company. As such they usually constitute businesses that are considered to be social enterprises. CICs have an ‘asset lock’ whereby there is a limit on the amount of capital that can be transferred to other entities or to any members through dividends. The CIC must also pass the community interest test upon becoming a CIC, whereby the Regulator must be satisfied that the purposes of the CIC are in the public interest. A CIC can either be registered upon incorporation or an existing company can be converted to a CIC as long as the Articles of Association are amended to reflect the requirements of a CIC, including the asset lock rules.

The CIC structure is designed to strike a balance between the stringent regulatory requirements of charities and the freedom of private limited companies to distribute dividends to members. As such CICs have a more flexible structure and looser regulations than charities, but the asset lock means that profits can’t be distributed as freely as with private limited companies, protecting the community purpose.

A CIC can be an ideal business structure in the following circumstances:

  • If the business is run as a normal trading business, however the profits will be used to benefit the community
  • If the business itself is designed to benefit the community directly through its principal activities

In some cases it may be more beneficial for the company to be set up as a charity rather than a CIC, particularly where the company is for exclusively charitable purposes and hence may benefit from tax advantages as a charity. In cases where the company needs to be run more commercially it may be more beneficial to operate as a CIC as it has the freedom of having non-charitable status.

Considering whether to set up as a CIC, charity or private limited company can be a difficult decision. If you require assistance or advice to enable you to make the decision or incorporate the company, please contact our company secretarial department who will be able to assist.