The Benefits of Setting up a UK Community Interest Company

UK Community Interest Company

By Caitlyn Buchanan, 16.11.2020

In the UK, there is a specific legal form for a social enterprise company called the Community Interest Company. The UK introduced this new company type in 2005 which is designed to allow social enterprises to use their profits and assets for social good.

Community Interest Companies (CIC) are a special type of limited company which exists mainly to benefit the community rather than its shareholders. Before the introduction of the CIC, limited companies without charitable status had no clear way to declare a purpose of public benefit. 

What are the benefits of setting up a CIC?

A community interest company is the ideal company type for a social enterprise that wants to address the needs of the community without being strictly ‘not for profit’. Social Enterprise companies don’t rely on donations from the public, instead, they work toward a social purpose, often create jobs within the communities they serve and generating revenue. Generally, revenue is reinvested in the company and community but because a CIC is a limited company it has shareholders and can generate investment capital and even deliver returns to investors. Making a private profit is not the sole purpose, a CIC’s primary purpose should be to benefit the community. 

A private limited company (LTD) or public limited company (PLC) can become a CIC, however, the dividends paid on shares would be capped at 35% of the company’s profits. Directors can also receive a salary from a CIC.

Community Obligation 

The CIC legal structure supports a wide range of activities from very small local projects to multi-million-pound health services. Since they were introduced in the UK, CIC’s have become considerably popular with over 14,000 currently registered. These companies undertake various activities covering all industry sectors. CICs are permitted to encourage investment in the social enterprise sector whilst ensuring true community benefit is the primary purpose of the company. Every CIC is required to make an annual submission detailing the activities undertaken and how the community has benefitted. This document is available to the public detailing exactly how the CIC has met its social obligations. 

How to Register a Community Interest Company

A new CIC company can be registered, or an existing company can be converted to a CIC. If you wish to register a company with the CIC Regulator the following items are required:

  1. Asset Lock – This legal statement promises that the company’s assets will be used to meet social objectives and sets dividend limits. Companies with CIC status are not permitted to pay dividends to shareholders of more than 35% of the profits. This cap secures assets to be used for the benefit of the community. However, profits may also be transferred to another organisation such as charity which also has an asset lock. For Example, a coffee shop may operate as a CIC and donate a percentage of its profits to charitable causes. 
  2. Community Interest Statement – This document is to confirm that the company provides benefit to the community and details its activities and who they will benefit. Annual supporting statements must also be filed and made available to the public. 
  3. Company Constitution – The company’s memorandum and articles must satisfy the community interest test. If an existing company is converting to a CIC it will need to amend its constitution. 

If you would like to register a Company in the UK or register for CIC status it is recommended that you seek professional advice. The experts at EuroCompanyFormations can assist you to register a new company or access whether an existing UK company is suitability for CIC status. Our team assist with the various obligations including drafting or amending a company constitution. Please contact us today for more information on how to register a Community Interest Company. 

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