The Community Interest Company Option

1
The Community Interest Company Option

• Sara Burgess
• Regulator of Community Interest Companies

2
The CIC Regulator

• The CIC Regulator is appointed by the Secretary
  of State for The Department for Business
  Enterprise and Regulatory Reform (BERR)
• Working with a team based at Companies House to
• Create awareness of the CIC option
• Make decisions about eligibility
• Investigate where there is cause for concern
• Take action if needed

3
To be covered within this session

• CICs and benefits of the model
• What is different special features
• Generating Income
• Governance and management
• Eligibility
• Registration
• Regulation

4
Background

• The Companies (Audit, Investigation and Social
  Enterprise) Act 2004 established CICs as a legal
  form
• To widen and deepen the enterprise culture
• To attract both social and commercial investor
• To create a strong new brand for socially
  motivated organisations
• To use the company form to lock assets into a
  social purpose

5
What are Community Interest Companies?

• Limited companies with a social purpose
• a business and registered through Companies House
• Must comply with Company, Insolvency and CIC
  legislation
• regulated with a light touch
• Can engage in any lawful trade activity or
  enterprise and generate profit for community
  benefit
• Can pay directors and staff like any other
  commercial company
• Can issue shares but dividends are capped and
  payments must be agreed by members resolution

6
Special features

• The Community Interest Test
• The Asset Lock
• Additional Clauses in Mem and Arts
• Directors Remuneration
• Transparency of operation
• Single Reporting process
• Light touch regulation annual report

7
Community Benefit

• To test the motivation for the activities of the
  company
• To define the community which will benefit
• To be clear there is no political motivation
• Cannot be a charity

8
Community Interest Test

• Might a reasonable person consider the activities
  of the company are being carried out for the
  benefit of the community?
• Activities must be carried out for benefit of
  community
• If you make a surplus what will you do with it?

9
The Asset Lock

• Statutory requirement to ensure assets are used
  for the benefit of the community
• Restrictions on winding up
• Prevents the CIC giving away the communities
  assets at less than the true market value unless
  to another asset locked body no windfalls
• Caps dividends and performance related interest

10
Finance

• A CICs profits must be for the benefit of the
  community
• A CIC can be funded through grants, donations,
  etc.
• Income can be generated through issue of shares
• It can can access the debt markets, for loans and
  bonds
• It can enter into contracts

11
Forming a CIC

• You cannot form a CIC if-
• You are a Political party or exist principally
  for political motives
• You are a charity but charities can form CICs to
  trade under
• Your community is so small that the benefit is
  limited to one or two people
• The process is simple and straightforward

12
Register a CIC

• Deliver to Companies House
• Forms for Company registration
• Memorandum and articles of association with
  additional clauses
• Community Interest Statement
• Declaration regarding political actiivity
• Details of Directors
• Declaration of compliance with regulations
• Fee

13
Managing a CIC

• Directors must ensure the company meets the
  requirements of company law and the community
  interest
• Individuals are appointed by the Board and those
  who become shareholders
• Only the members not just the directors can
  declare a dividend
• Directors can be remunerated but if too high it
  could be in breach of the asset lock
• Members and stakeholders are key in the decision
  making process

14
Regulation

• Ensures community benefit and the asset lock
• Confirms eligibility
• The Annual report demonstrates transparency in
• How the activities benefited the community
• Who was consulted and the outcome
• What payments were made to directors
• What assets were transferred
• What dividends were paid
• What performance-related interest was paid on
  loans and debentures

15
Benefits of the Model

• Limited liability flexible company form easy to
  set up
• Greater transparency of operation
• More flexibility than a charity
• Light touch regulation, (but no tax advantages)
• A statutory asset lock and regulated community
  purpose differentiates it from ordinary companies
• There is continuity of social purpose
• A unique brand which provides a higher profile

16
Contact Details

• Website www.cicregulator.gov.uk
• E-mail cicregulator_at_companieshouse.gov.uk
• Address
• The Office of the Regulator
• Community Interest Companies
• Room 3.68
• Companies House
• Crown Way
• Cardiff CF14 3UZ.
• Telephone [phone]