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CICs can be limited by shares, or by guarantee, have a statutory “asset lock” to prevent the assets and profits being distributed, except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes, or transferred to another asset-locked organisation, such as another CIC or charity.
A CIC cannot be formed to support political activities and a company that is a charity cannot be a CIC, unless it gives up its charitable status. However, a charity may apply to register a CIC as a subsidiary company.
"The formation and registration is similar to that of any limited company. New organisations can register by filing the Form IN01 and memorandum and articles of association together with a form CIC36 signed by all their directors, explaining their community credentials to the Registrar of Companies for England and Wales, or the Registrar for Scotland with a fee of £35.
Model Articles and Memorandum
A community interest company, known as a CIC is a hybrid between a regular commercial trading company and a charitable company, and became available from July 2005.
The idea behind the CIC was to promote social entrepreneurship, allowing for projects to be undertaken where high calibre directors can be recruited by offering market salaries, and investors with a social conscience can receive a return on their money, albeit capped by regulation.
A key feature is the "asset lock" whereby the assets of the CIC can only be applied directly for the objects of the Community Interest Company or similar enterprise upon cessation of the company's business.
It will not be automatically treated as a charity and it will ordinarily pay tax like any other company, although certain tax breaks for investors may be available.
There will be a regulator for Community Interest Companies and upon the approval of the regulator an application for company formation can proceed to Companies House.
It will be possible to convert existing companies into Community Interest Companies
the process in full:
- Register a limited company
- Provide a community interest statement
- Passing the CIC test
- CIC Approval
Register a limited companyAll CICs need to be registered limited companies, not charities or any other legal format. However, when registering you will need to supply additional documents stating your social purpose. At this point you need to check your memorandum of articles fully complies with the relevant CIC legislation. You should also think about the distribution of shares. If you set up as a limited company by shares you have the option to issue shares that pay a capped dividend agreed by a CIC Regulator, which adhere to CIC obligation to lock all assets from being transferred for less than their full market value.
- Choose format for limited company
- Ensure memorandum of articles meet CIC requirements
Provide a community interest statementThe most important additional document you need to provide when registering as a CIC is a community interest statement. The CIC36 form outlines the social objectives, interests and activite of the CIC as well making various declarations to operation under CIC regulations. The CIC36 must be signed by all first directors. Companies already operating as a limited company but switching to CIC status must fill in a CIC37 form.
- Outline social aims of CIC in a community interest statement
- Get all directors to sign completed CIC316/CC317 form
Passing the CIC testIn order to be approved as a CIC you'll need to satisfy the official Community Impact Regulator in a process termed 'passing the CIC test'. The test will assess your paperwork and confirm your CIC meets its purposes and could be regarded by a reasonable person as being in the community or wider public interest. It will also be asked to confirm that access to the benefits it provides will not be confined to an unduly restricted group. It is intended to be a light touch test but you be assessed annually that you have stuck to your aims.
- Apply to the Community Impact Regulator
CIC ApprovalIf satisfied, the regulator will advise the registrar in Companies House who, providing all the documents are in order, will issue a certificate of incorporation as a CIC.
- Incorporation as CIC approved on passing CIC test