Company Formation Specialists

Community Interest Companies

Community Interest Companies are companies that have been established for the greater good of the community. They are aimed at social enterprises that do not have charity status. The benefit of a Community Interest Company is that the company does not have any financial or growth restraints, as with a charity and maintains trust within the community, which might be lost by trading as a private company.

There are many communities that have institutions (e.g. community centres) that have not been incorporated or have not applied for charity status. These institutions may see Community Interest Companies as a way of protecting their valuable assets and profits and also protecting the people that run the project through the limited liability principles set out in Company Law (Directors and Shareholders have no personal liability whatsoever, unless they have acted improperly).

A Community Interest Company can be set up in one of three forms:

• Private company Limited by guarantee (not for profit)
• Private company limited by shares
• Public company

What is the difference between a company limited by guarantee and a Community Interest Company?

The main differences between a company limited by guarantee and a Community Interest Company are:

• A company limited by guarantee may apply for charity status: due to the nature of a Community Interest Company, this option is not available to CICs. (However a charity may own a Community Interest Company).
• A company limited by guarantee does not need to satisfy the Regulator that they are operating for the good of the community, whereas a Community Interest Company must declare this as part of the incorporation process.
• A Community Interest Company may not be suitable for all company types, e.g. it is not possible to form a Community Interest Company if the enterprise has any connection, or involvement with a political party. A limited by guarantee may be set up by any enterprise wishing to run a not for profit company.
• A Community Interest Company may be set up as a company limited by guarantee (not for profit), or as a company limited by shares (which may issue shares).

How do Community Interest Companies differ from charities?

• Charities must be established exclusively for charitable purposes, whereas Community Interest Companies can be established for any lawful purpose, provided their activities for the greater good of the community.
• Charities have certain tax advantages that are not available to Community Interest Companies.
• Charities are subject to more stringent regulation than Community Interest Companies (although a Community Interest Company must file a community interest report to ensure they are working towards the good of the community).
• The Community Interest Company has been specifically designed to provide a purpose-built legal framework and a "brand" identity for social enterprises that want to adopt the limited company form.
• Community Interest Companies will be free to operate more "commercially" than charities but stakeholders (shareholders / members of the community) will still have the assurance of community benefit provided by the asset lock (see below) and transparency about their activities ability through the community interest report (see below).

There are two main features unique to Community Interest Companies:

"Community Interest Test"

The "Community Interest Test" is carried out by the Regulator and is designed to ensure that the Community Interest Company will be run in the interests of the community. The company will be required to submit a community interest statement declaring the work carried out by the Community Interest Company will be for the benefit of the community. The statement should include the intended activities and confirm whose interests the company"s officers serve. The Community Interest Company must also confirm that is not connected or controlled by a political party or engaged in defined political activities. Directors will be required to submit an annual community interest report to highlight how the Community Interest Company is acting in accordance with its status.

The "Asset Lock"

The "Asset Lock" is designed to ensure that investors, along with the community know that their money will be legally tied to the Community Interest Company and its interest in the greater good for the community will be maintained. Under the Asset Lock, any assets or profits raised by the community interest company must be retained within the company or transferred to another organisation that has an asset lock itself (e.g. a charity or another Community Interest Company).

Community Interest Companies will have the ability to sell shares (this is available to companies who opt to be "Limited by Shares"). Dividends are payable, although they are capped at a rate stipulated by the Regulator.

Payment of Directors

Community Interest Companies may pay their directors, enabling them to employ directors with the ability to create wealth for the company for the greater good of the community.

Can an existing company convert to a Community Interest Company?

Existing companies, e.g. limited by guarantee or limited by shares may convert to Community Interest Company status by satisfying the Regulator that they meet the requirements and adjusting their Memorandum & Articles accordingly (we will be happy to assist you in converting your existing company to a Community Interest Company). Charities may also convert to a Community Interest Company; however lose their charity status by doing so.

Are there any tax advantages to a Community Interest Company?

While Community Interest Companies have no special tax advantages, regional assistance, Lottery funding any other sources of aid may be available.

Is the Community Interest Company required to file annual documents?

The Community Interest Company will be required to file accounts and an annual community interest report. These documents will be placed on the public record, as with other incorporated limited companies. The Regulator will also receive a copy of the report.

The community interest report must include information detailing any payments to directors, dividends paid to members and interest paid to lenders. The report must also outline how the work it has done has benefited the community and how its shareholders have been involved in its activities.

Community Interest Companies are categorised into:

Community Interest Company, Limited by Guarantee (not for profit) with a small membership

Designed for companies where all the directors are members of the company and all of whose members are directors of the company. It assumes that the directors will take most important decisions as directors rather than as members, and that directors may hold office continuously for long periods of time without offering themselves for re-election. It also allows, subject to certain minimum procedural safeguards, for relatively informal decision-making by directors (including by exchanges of e-mail).

Community Interest Company, Limited by Guarantee (not for profit) with a large membership

Designed for companies that have more members than they have directors. Although it assumes that the directors will take most day to day decisions about the company"s business, it also gives the members a strong role in controlling the overall governance of the company. It includes provision for some of the directors to retire and offer themselves for re-election each year. The procedures for decision-making by directors are more formal than in the other model constitutions.

Community Interest Company, Limited by Shares with a small membership

Designed for companies where all of directors are members of the company and all of whose members are directors of the company. It assumes that the directors will take most important decisions as directors rather than as members, and that directors may hold office continuously for long periods of time without offering themselves for re-election. It also allows, subject to certain procedural safeguards, for relatively informal decision-making by directors (including by exchanges of e-mail).

Community Interest Company, Limited by Shares with a large membership

Designed for companies that have more members than they have directors. It assumes that the members will delegate most the decision-making within the company to the directors, but gives members a significant role in relation to the overall governance of the company. It includes provision for some of the directors to retire and offer themselves for re-election each year. It also allows, subject to certain procedural safeguards, for relatively informal decision-making by directors (including by exchanges of e-mail).