Community Interest Companies
Despite the fact that Community Interest Companies have now been around for a long time, we were only recently asked to be involved in the creation of a Community Interest Company (CIC). The first question to ask is whether the intention of those promoting the company can fall within the definition of a CIC. In broad terms, a CIC must be a company whereby there is no intention to make profit for distribution to the investors. The intention is that any profit is made for the benefit of the community. There is an ability to pay shareholders but this is subject to a cap.
In many ways a CIC is similar to a charity but the principal difference is that the intention is to use commercial expertise for the benefit of the community as distinct from doing this from a charitable perspective. I appreciate that the line between the two is blurred. There is one important point which is if a CIC is created it cannot be converted into a charity. Having said that, a charity can use a CIC for its commercial activities.
There may be many reasons for not creating a charity but the principal will be that the objectives are not charitable objectives. For example, a CIC may be used to save the village pub. Whilst many of us consider that to be a laudable and worthwhile exercise it is not, by definition, charitable.
In setting up a CIC you have to have a clear idea of the community which you are trying to benefit. A community may either be the whole of the population or a definable group within the UK or elsewhere. The important point is that the community must share a common characteristic and be recognisable as a section of the community. Reverting to the example of the village pub, to describe the community as regular drinkers of the pub, or a particular type of beer within a pub, is unlikely to be acceptable. However, if the community is described as the residents of the particular village then that should be sufficient. In case the readers should get the wrong impression of the significance of alcohol in my life, other examples could be the running of a bus service for a community or a community centre.
What is a community is widely drawn. For example, the residents of a particular area, people with leaning difficulties, sufferers from a particular disease. In all this, there has to be a wider community interest so that a company set up to benefit the employees of a particular employer will not be sufficient. If the primary interest is to benefit the employees or ex-employees of a particular employer then the wording in the creation of the CIC will have to be carefully considered.
Certain activities are specifically excluded from being capable of being incorporated into a CIC. I have already mentioned charities and another is a political party.
CICs are regulated by the CIC Regulator who will have to approve the creation of such company.
Leaving aside the fact that a CIC has to be set up for the benefit of the community and not for the purpose of making a profit to be distributed to its members, the company will be the subject of the requirements of running a limited company with directors and the necessity of filing documentation.
CICs have been successfully used but merely because they are a CIC does not guarantee the success of the activity. For example, if the CIC has been set up to run a taxi service, if there are not enough people who are prepared to be taxi drivers the project will fail. The CIC is an interesting and useful concept which has assisted many worthwhile projects to be incepted and then progressed.
Hugh Ellins – 4th April 2019