A Community Interest Company (CIC) can be regarded as a special type of non-charitable limited company. It mainly exists to benefit a particular community or alternatively to pursue a social purpose, instead of making a profit for the shareholders. That said, a CIC is not the sole type of business that is available for the people who are seeking to pursue any kind of social enterprise. In this case, these companies might be set up as trusts, charities, unincorporated associations, a Charitable Incorporated Organisation (CIO) or standard companies.
In this article, we check out some benefits of a CIC, offering background about the circumstances where it might be useful. We also mention situations where a CIC might not prove to be appropriate for business owners.
Benefits Of A Community Interest Company
As opposed to a standard company, a community interest company provides a number of benefits:
1. A Clarity in Commitment When it Comes to Social Goals
For normal limited companies, social aims are usually mentioned in the articles of association. Community interest companies, on the other hand, confer a commitment with clarity to a communal cause. Moreover, community interest companies are also subject to the CIC Regulator’s ongoing regulation. This further helps in creating confidence in CIC’s integrity.
2. Access to Some Finance Forms
Many donors only give to community interest companies or charities due to the protections that these vehicles offer regarding the funds being used solely for the stated purpose. Hence, access to finance may result in a social enterprise to function as a community interest company instead of a standard company. This holds true irrespective of whether the access is through grants, community development finance or donors.
3. Protection & Limited Liability
The most obvious advantage, just like other businesses that operate as a limited company, is more definitely a limited liability. This offers a crucial security element for those people who manage as well as own the business. At the same time, CIC also offers protection for assets that are related to an individual’s social enterprise, which are not usually available for unincorporated entities. In this case, they are mostly held in the individuals’ name.
The structure of a limited company, including the members/shareholders and directors, is most familiar to the people who are responsible for the running of the organisation. In addition to that, this structure will also be recognised by the people that the company engages with as well as by the business community.
5. Limited Company Structure Flexibility
The structure of a limited company forms the foundation of a CIC. It can offer loads of flexibility in order to meet the unique requirements of varied organisations. You can set up a community interest company by a public limited company, a private company limited through a guarantee or using shares. People who have a history of working with charitable organisations are usually familiar with the guarantee company. On the flip side, a community interest company that has been set up in the form of a company limited can, in fact, use shares in order to raise capital. This includes employing multiple share classes.
It is also pertinent to mention here that a community interest company limited that functions using shares can be dividends in an attractive manner up to a ‘dividend cap’. Remember that it is not really possible for you to change between varied structures. That said, a non-charitable company has a lot of freedom when it comes to adapting to circumstances and identifying them. Moreover, they can exploit potential opportunities in a manner that would not really be possible with other business structures that are more rigid.
6. Continuity of Purpose
For a kind of limited company, a CIC mostly has its very own legal status. Therefore, it shall continue its operation and also offer benefits to the community until such time as it is converted into a kind of charity or dissolved completely. Even if the latter is the case, the CIC model has a particular feature that any and all residual assets that are left after the creditors are paid must be transferred to any other body that is asset-locked such as a charity or a CIC. This makes sure that the funds that have been invested in a community interest company shall continue benefiting charitable or social ends, even if the company does not exist any longer.
7. Quick Set-Up
Finally, a CIC can be formed more quickly than a charity. All it needs is a single consolidated application in order to form the company. This application must be made to the Companies House, where they as well as the CIC Regulator review separately. When compared, in a charitable company, the company’s incorporation must be undertaken with the Companies House. After that, another application must be made to register it as a charity to the Charity Commission. This can sometimes take weeks or months.
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