Registering as a CIC

What is a CIC?

A community interest company (CIC) is a type of Limited Liability Company formed specifically for the purpose of carrying on business for social purposes or to benefit a community. Any company may decide to carry out work for the public benefit if the directors decide it should, but funding bodies are rarely willing to support such activities unless it is obvious that the company’s activities are clearly for the benefit of the public. For this reason, many organisations opt for the CIC corporate structure; a structure that has various protection measures in place to ensure that funds are used solely for the advancement of its community purpose. This is a social profit-making enterprise that is required to generate profit to remain solvent, but its profits (or surplus) will be applied to its community purpose rather than for private gain. An already registered limited company is able to re-register as a CIC.

What are the different types of CIC?

A CIC can be either limited by shares or limited by guarantee, most CICs take the latter form. A CIC limited by guarantee is a company which has no share capital and can therefore not pay any dividends. The owners agree to be liable to the company’s debts up to a specific limit in the event that the company is to be dissolved. Beyond that, they have no further liability for the company’s debts.

In a CIC limited by shares, the company will have a stated amount of capital which is divided into a number of shares. Once a shareholder has paid the full nominal value of his or her shares to the company, he or she has no other liability.

If you already have a company and you are re-registering as a CIC, you have already determined which type you will have. If the existing company has Shareholders and Share Capital then it will convert into a Community Interest Company Limited by Shares. If your existing company has Trustees, who put up a cash Guarantee instead of owning Shares, then it will convert into a Community Interest Company Limited by Guarantee.

What are the restrictions for CICs?

The main feature of the CIC structure that ensures the protection of funds within the company is the ‘Asset Lock’. This covers all of the provisions that apply to CICs to ensure that the assets, including profits generated by the CIC, are used for the benefit of the community rather than for private gain. The ‘Asset Lock’ is generally divided into three sections, each detailed below.

    1. Transfer of assets – If a CIC is to make a transfer of assets, it must follow at least one the following requirements:

      • It is made for full consideration at market value so that the CIC retains thevalue of the assets transferred.
      • It is made to another asset-locked body as specified in the CIC’s articles of association.
      • It is made to another asset-locked body with the consent of the CIC Regulator.
      • It is otherwise made for the benefit of the community.

Dividend cap – One advantage of CICs limited by shares is that dividends can be paid to shareholders. This can make a CIC an attractive investment proposition. However, given the social mission of a CIC, the amount of profits paid out to shareholders is capped at 35 per cent by law. The remaining 65 per cent of distributable profits must be reinvested back into the company or used for the community it serves.

Redemption or repurchase of shares – a CIC is subject to the following restrictions set out in the CIC Regulations

    • A CIC can only carry out the repurchase of shares if the amount to be paid by the company does not exceed the paid up value of the share.
    • A CIC may not reduce its share capital unless the reduction is made by also reducing the liability of any of the members on any of the company’s shares in respect of share capital not paid up.
    • It is made to another asset-locked body with the consent of the CIC Regulator.
    • It is otherwise made for the benefit of the community.

What are the benefits of converting to a CIC?

As mentioned before, some donors will only give to charities or community interest companies, because of the protections these vehicles provide that funds will be used for stated purposes. Therefore, easier access to finance; through donors, grants or community development finance, is a big factor when considering registering as a CIC.

The CIC has corporate structure. This means that, like a limited company, the CIC has a limited liability, an important element of security for those who own and manage the business.

With regards to the registration process, registering a CIC is generally much quicker than registering a charity. A CIC can be registered with a single form sent to Companies House which is also reviewed by the CIC regulator, whereas a charity application may take up to months to complete.

How to become a CIC?

When it comes to registering as a CIC, you can either re-register an existing company as a CIC, or you can start an application to register a new CIC.

In order to re-register a limited company as a CIC, a CIC37 form would need to be completed. The constitutional documents for your CIC (called Memorandum & Articles of Association) must state the aims of the organisation. The existing memorandum & Articles of your Private limited Company will have to be replaced.

If you are registering a new CIC from scratch, there are 3 steps before your CIO is registered. You will need to register your company name with Companies House, register with HMRC for Corporation Tax and gain approval from the CIC Regulator to form a CIC. You can use gov.uk’s online service to complete all these three steps at the same time. You will need to have your CIC’s memorandum and articles of association prepared before you start the registration process.

Compliance as a CIC

With regard to accounting requirements, they are the same as limited companies with the addition of a CIC report (CIC34). This outlines the CIC’s activities and impact, consultation with stakeholders, directors’ remuneration and detail of transfers of assets other than for full consideration.

Meer & Co
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