We all know what companies and charities are well, but did you know that in the UK there’s a “something in the middle” of sorts? That’s right, the UK has another type of registration called a CIC – Community Interest Company and more commonly understood as a social enterprise. It’s the operating mentality of a limited company with the heart of a charity. The existence of this type of organisation is, in and of itself, quite extraordinary and rare. We at AKCG operate a CIC and we also help community interest organisations start CICs here in the UK. Taking from that experience, we thought we’d answer your most common questions about them.
What is the formal definition of a CIC?
The UK government defines a CIC as a special type of limited company which exists to benefit the community rather than private shareholders. So at the end of the day, if there’s any “profit” left over, it goes back into the community instead of to individual owners.
How is community defined?
Ever hear the phrase “what a reasonable person” would think? That’s sort-of how defining your community works. It can be any specific group, cause or population that will benefit from the work of the CIC that a “reasonable person” would understand as a community. For example, you could be as broad as “young people” to as specific as “students at Shoreditch Community Centre who take part in after-school programs.” There’s a lot of scope here but there are equally a lot of clear, fair and important conditions to maintain the integrity of CICs as truly community-benefiting organisations.
What are the upsides?
The main upside is that an organisation can get up and running as a CIC a great deal faster than a charity can, meaning social impact can start sooner. In addition, activity breadth is more flexible and there are fewer reporting requirements compared to a charity.
What are the downsides?
The primary downside is that CICs cannot take tax-deductible donations, which can potentially limit your ability to raise funds from individuals. In addition, there are no tax breaks for CICs that charities enjoy, even if there objectives are totally charitable.
What about the fine print? There’s got to be more too this.
There are a few additional elements worth noting up front. First, CICs must maintain an asset lock that guarantees all assets are for the benefit of the community. Second, there is a cap on dividends that can be taken from owners and directors. Finally, each year a Community Interest Company report must be filed to ensure the CIC is legitimate and supporting its stated beneficiaries.
So, is a CIC right for you?
Having worked with organisations of all types entering the UK market, a CIC is a great way to “get going” quickly so that you can start operations as soon as possible. If your intention is to be a registered charity, that can be pursued simultaneously, ensuring that you are moving at full steam as a CIC by the time your registration is approved. Drop us a line if we can be helpful.
For more information, contact us at: [email protected]