Establishing a community-interest company (CIC) has become popular for entrepreneurs aiming to blend profit with purpose. With increasing public demand for businesses to address societal and environmental issues, 2024 could be your year to set up a CIC.
Our guide explains the process of setting up a CIC and the key considerations so you know exactly what to expect.
What is a CIC?
A CIC is a business entity designed for social enterprises that use their profits and assets for the public good. CICs generate income with a business-like focus but must primarily benefit the community rather than private individuals. This makes them attractive to social entrepreneurs.
Established under the Companies (Audit, Investigations and Community Enterprise) Act 2004, and regulated by the Community Interest Company Regulator (CIC Regulator), CICs must dedicate their activities and profits to their declared community interest. Unlike charities, CICs can undertake a broad range of activities, offering more operational flexibility and the ability to pay directors directly.
Registering your CIC online
The online registration process involves a few key steps: choosing a suitable company name, preparing a community-interest statement and creating articles of association. The fee for online registration is £27.
Complete form IN01 to register the company and form CIC36 to confirm your community-interest objectives. Submit both forms to Companies House, where the CIC regulator reviews them to ensure the company genuinely serves the community interest. Once approved, the CIC is incorporated and can start its operations.
Required documents: CIC36 form and articles of association
The CIC36 form contains the community-interest statement detailing how the CIC will benefit the community. This form must clearly demonstrate that the CIC will best meet the community’s interest.
The articles of association establish the internal governance framework, including the appointment of directors, the rights of members and handling finances. Both documents must ensure the CIC operates transparently and adheres to its social objectives.
The postal application process
To register a CIC via post, complete form IN01 and form CIC36, and attach the articles of association. Send all documents along with the £35 registration fee to Companies House at:
CIC Regulator
1st Floor
Companies House
Crown Way
Cardiff
CF14 3UZ
Ensure all forms are correctly filled out to avoid delays. Once processed, you will receive confirmation of your CIC registration.
Creating your CIC’s legal framework
Drafting the memorandum and articles of association forms the legal backbone of the company. The memorandum includes the names and signatures of the initial subscribers and explicitly states the intent to operate for the community’s benefit.
The articles of association outline the internal management structure and operational guidelines, ensuring that profits or assets are used primarily for the community’s benefit. Professional legal assistance is recommended to ensure these documents meet all regulatory requirements.
Including mandatory clauses for CICs
Mandatory clauses in the articles of association secure the CIC’s community-focused intent. The asset-lock clause prevents assets and profits from being distributed for purposes other than benefiting the community. The dividend cap limits the maximum dividend that can be paid to shareholders, ensuring the majority of profits are reinvested into the community.
Ensuring compliance with CIC regulations
CICs must submit an annual community interest report detailing their activities and demonstrating how they have benefited the community. They must also keep accurate and transparent financial records and may be required to conduct regular audits.
Directors and staff should be trained on the legal responsibilities specific to CICs to prevent unintentional breaches of regulation. Legal advice should be sought when amending the articles of association or undertaking significant operational changes.
Working with vulnerable groups: safeguarding and DBS checks
CICs working with vulnerable groups must implement stringent safeguarding measures, including disclosure and barring service (DBS) checks for all employees and volunteers who have direct contact with vulnerable populations. Safeguarding policies should outline procedures for reporting and responding to concerns and training staff on recognising and handling potential abuse.
Annual reporting and accounts
CICs must submit annual reports and accounts to Companies House, including a detailed account of activities and financial health. This annual submission helps stakeholders assess the CIC’s effectiveness in fulfilling its social objectives and it maintains public trust.
Converting to a CIC
Converting a private company to a CIC involves passing a resolution by shareholders, preparing and submitting a CIC36 form, and amending the articles of association. Once the CIC regulator approves, the company can operate as a CIC.
Get help
Running a CIC offers valuable opportunities to make a significant social impact while facing unique challenges. The future for CICs looks promising as societal values continue to shift towards sustainability and social responsibility.
At Almar BSL, we are with you every step of the process and can ease the stress and burden of creating or converting into a CIC. Following our guide, you can navigate setting up a CIC and contribute positively to your community.
Get in touch for expert support with setting up your CIC.
