SAfE - We Fear No Forms
Community Interest Companies
This page has been developed on the web rather than as a Word document simply because it makes the links easier to follow.
What is a CIC?
"CICs were developed to address the lack of a legal vehicle for non-charitable social enterprises across the UK. Available since 2005, there are now over 3,100 [in 2009]. CICs vary in size from tiny community-based organisations to multimillion pound enterprises. Their areas of operation include physical well-being, radio and television, the arts, education, and health and social work.
Fundamentally CICs are normal companies. They can be established either as companies limited by guarantee (CLG), which around three-quarters are, or companies limited by shares (CLS). However, they have some unique and important additional features to safeguard their social mission.
A CIC has to carry out activities which fulfil a community purpose. This is defined when an application is made to set the CIC up. There are a huge variety of purposes which meet the so-called "community interest test". These range from promoting the healthcare of residents of a particular community to promoting climate change awareness programmes or reducing greenhouse gas emissions.
A CIC also has a "lock" on its assets. This prevents profits from being distributed to its members or shareholders other than in certain limited circumstances. It also means that all assets must be used for the community purpose or, if they are sold, open market value must be obtained for them and the proceeds used for the community purpose. In addition, if the CIC is wound up, its assets must be transferred to another, similarly asset-locked body."
- CICs provide a structure that is specifically designed to enable organisations such as social enterprises to focus on their social objectives. The CIC structure enables organisations to make it clear to the public that, while they do not wish to become charities, they want the community, rather than their members or shareholders, to benefit from their work.
- The ability to incorporate the CIC in the traditional way provides limited liability for the shareholders, directors and members, while the opportunity to choose a specific legal structure (and to set up as a company either limited by shares or guarantee) provides flexibility to meet the particular needs of individual organisations.
- The asset lock ensures that money invested in a CIC is legally tied to that company and its social objectives, and is used to benefit the community rather than individual shareholders. Those who fund CICs (such as individual and corporate investors or grant-funding bodies) can therefore be confident that the assets and profits will be used for the purpose for which they were intended.
- The familiar management structures of shareholders, directors and members provide a tried and tested system of running and managing the company, whether it is limited by shares or guarantee.
- High-calibre individuals [my emphasis] may be attracted to work for the organisation as they can be paid salaries at market rates. This contrasts with the rules relating to charities which require them to be managed by volunteer boards, and means that the founders of the CIC can also retain strategic control of the organisation by being appointed as paid directors.
- While CICs are regulated by the CIC Regulator, this is done by way of a 'light touch' in contrast to charities which are very strictly regulated by the Charity Commission in England and Wales and the Office of the Scottish Charity Regulator (OSCR) in Scotland.
So far, so good, but I have always struggled to find details on three aspects: control, payment and tax.
Control - Our suggested model states, "Model constitution 1 is aimed at private companies limited by guarantee, all of whose directors are members of the company and all of whose members are directors of the company. It assumes that the directors will take most important decisions as directors rather than as members, and that directors may hold office continuously for long periods of time without offering themselves for re-election". No mention of trustees.
Payments - clause 24.3 of the suggested Articles states (p.7), "24.3 Subject to the Articles, a Director’s remuneration may:
(a) take any form..." .
There is a great deal of wordage in these standard documents that simply will not apply, but it might be easier to leave it in and ignore it rather than try to write a relevant and valid (i.e. acceptable to HMRC and the Companies Registrar) one along the lines of, "worker-directors may get occasional sessional payments and course fees if there is money available but will never get a regular wage, holiday pay, sick pay, a pension or anything else").
Tax - (from St. Helens, p.6) "CICs and their
directors' administrative obligations include the following:
To inform HM Revenue & Customs (HMRC) once the company is about to start actively
trading, as it must be set up for corporation tax within three months of the start of the
accounting period to avoid penalties, and must also be set up as an employer for Pay As You
Earn (PAYE) tax and national insurance purposes before the first pay date".
I think we should take this as our working assumption until we establish otherwise. If (as intended) we continue with the current system of session payments we will have the individual responsibility to submit self-assessments to HMRC (something I'll have to do for the 2016-17 tax year).
On VAT, the CIC Infopack (p.28) says "There is no general exemption from VAT for social enterprises that undertake trading activities. VAT is a tax on turnover (‘taxable supplies’ over £67,000 in 2008/9), and is based on the nature of the good or service supplied. Enterprises operating without a profit motive are still liable to pay VAT, however, those engaged in provision of education, health or welfare may find exemptions. Further detail can be found on the HM Revenue and Customs website".
Constitution - gov uk provides model constitutions. We might suit Model constitution 1: company limited by guarantee with a small membership.
Mandy has mentioned that our scope should be fluid allow us to grow in the future. We can also offer consultancy on setting up advice centres by the time this is done.
Setup from St. Helens p.5 - To register a CIC, the following incorporation documentation must be submitted:
- Memorandum of association and articles of association (see constitution, above).
- A statement of initial significant control including details of the 'People with Significant Control' (PSC) over the company.
- Form IN01 (application to register a company).
- Form CIC36 (the community interest statement). Community interest statements are used to describe the CIC's intended work, which must meet the community interest test.
- A cheque for £35.
Annual from Woodhouse - All need looking at, but some may not apply, and some might need 'nil returns'.
We will have to transfer our FCA permissions from "SAfE within CVS" to vanilla SAfE, but we noted when completing the forms that there is provision within the system for tranfers of "ownership" and if necessary we can always start again from scratch.
Ditto AdviceUK and we will also need professional indemnity insurance.
I have already spoken to CAF Bank and they have confirmed that they cater for CICs. This is not clear from their web site. Section 5.1 of the application form mentions CICs.
Guardian, Setting up a CIC https://www.theguardian.com/society/2009/dec/01/setting-up-community-interest-company
St Helens guidelines, Setting up a CIC https://www.sthelenschamber.com/assets/0002/1398/A_Guide_to_setting_up_a_Community_interest_company.pdf
Cultural Enterprise Office, http://www.culturalenterpriseoffice.co.uk/media/1286/setting-up-a-community-interest-company.pdf
Company Law Solutions, http://www.communitycompanies.co.uk/community-interest-companies
V.G. Woodhouse How do I register a CIC http://www.vgwoodhouse.co.uk/company-formation/cic-community-interest-company.htm
National Enterprise Network, CIC http://www.start.biz/nationwide/cic_inf