Setting Up Or Starting A Community Interest Company (CIC) - A How To Guide To Company Formation And CIC Registration

A 'How To' guide for starting or setting up a Community Interest Company (CIC) Social Enterprise. A simple, step-by-step guide to company formation and CIC registration, with advice and links to everything you will need.

How To Find Funding To Start Your CIC

Securing funding is almost always the biggest challenge.  The free Funding Finder database has a search category for social enterprises.

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If You Need Some Registration Help

I provide a friendly CIC registration service.  I charge £159, plus the £27 filing fee, with 100% of fees being used to help fund Charity Excellence.  Details here

Should I Set Up A Community Interest Company (CIC) Or Other Type Of Social Enterprise?

A social enterprise is a company that uses its profits and assets for the public good. Community Interest Companies (CICs) are probably the most well known, but there are range of other legal structures - here's a useful guide. If you’re not yet sure if a social enterprise is the right choice for you, my infographic will help you.

They have more of a 'business' image than charities, can pay board directors, financial reporting is less of a burden, some can issue shares etc, but don't qualify for charity tax reliefs and, whilst you can fundraise, it's more difficult. Here's are 10 steps to starting a social enterpriseonline learningfind a mentor and resources.

Setting Up Your Non Profit - CIC Versus Charity

CICs are non profit companies, but are not charities, although some can convert to become a charity. 

The legal definition of charity is narrower than non profit.  All charities are non profits, but not all non profits are charities.   

But that doesn't mean being a charity is always the best option: 

  • CICs can fundraise, but not as well as a charity and they don't get the often significant charitable tax reliefs, such as Gift Aid. 
  • However, they are far quicker and simpler to set up and are not subject to the high levels of bureaucracy imposed on charities.

Types Of CIC Company

There are 2 kinds of CIC - limited by shares or by guarantee.  Most people choose a CIC limited by guarantee (LBG). 

Converting A Company To A CIC, Or CIC To A Charity

A CIC Limited By Guarantee can convert to a charity (Foundation Model CIO).

You can also convert a Company Limited By Guarantee to a CIC, using Form CIC 37.

CIC Company Formation & Registration Process

CICs are registered with Companies House and the CIC Regulator.  You can find the regulator’s guidance on setting a CIC up here and the detailed guidance here.  

This article is basically a do-it-yourself guide based on this.  In registering, you will come across some legal terminology and this can be confusing.  Here are explanations of the main terms you will come across.  

  • Community Interest Company (CIC) - a special type of limited company, which exists to benefit the community rather than private shareholders
  • Limited by Guarantee - a type of company, usually a non-profit, which has guarantors, rather than shareholders.  Usually invests any profit back into the company. 
  • Form CIC 36 - application to form a CIC.  You will need to upload this as a pdf.
  • Community Interest Statement - is the Form CIC 36, which is required to confirm that the CIC will provide benefit to the community
  • Articles of Association - written rules about running the company.  In a charity, often referred to as your constitution.  You will need to upload these as a pdf.
  • Memorandum of Association -  a legal statement signed by all initial shareholders or guarantors.  The online system will create this for you.  
  • Asset Lock - a registered charity or other CIC that would be given any remaining assets, in the event your company is dissolved.  Enter details into your articles. 

Here is terminology you will come across during the online registration process. 

  • Persons of Significant Control (PSC) - those who control the company, not always its directors, but for small CICs, it usually is.  
  • Guarantors - promise an agreed amount of money to the company if it cannot pay its debts.  For CICs, it's a nominal £1, and the directors would normally be the guarantors.
  • SIC codes - standard industrial classification codes provide Companies House with a description of your company's nature of business.  There are codes for health, education, sport and just about everything else, but not non-profits.  The default code often used for us is 88990. 

Please note that I am not a lawyer, so am not competent to provide professional advice.  Equally, the definitions above are simple summaries of their more complex meanings, as a guide to understanding only.  If you need proper advice, you need to engage a lawyer.

Form CIC 36 - Community Interest Statement

This form is what you use to satisfy the CIC Regulator that your company will meet the Community Interest Test.  That is, its purposes are in the community or wider public interest and access to the benefits will not be confined to an unduly restricted group.  You can download the form and continuation form here.

Company Name

Write in the full name of your company.  Search the Companies House register to ensure that one doesn’t already exist and it doesn’t contain any unacceptable ‘sensitive words’.  If you wish to, you can find a list of these here.  These are basically words that if included would mislead someone into thinking your company is something it isn’t; royal, charity etc.

Section A: Community Interest Statement

This is who you provide benefit to, how you do that and what the benefits are.    

Who

The local community, a town, or county, or a section of the community, such as older or disabled people.

How

The activities you undertake that provide the benefits you deliver, such as selling products and services, running events.

What

What those benefits are, such as promoting wellbeing, helping people into employment, or alleviating loneliness.

Section B – Activities & Related Benefit 

Complete the 2 columns, using the continuation sheet, if necessary. 

  • Activities are what you do – selling products or services, such as running classes or events.
  • Benefits is the impact your activities have on the community, such as promoting employment, wellbeing, health or learning. Start each with ‘The community will benefit by…….’ can make this easier to do.

Include in this section how your company will be different from a commercial company, providing similar services or products for individual or personal gain.  Here are some ideas about the types of things this might include:

  • You charge below market rates, or subsidise some products/services. 
  • Free venue space, or priced below market rates. 
  • Running activities that are not commercially viable, which the community needs, by subsidising these from another part of the business. 
  • Small class sizes to meet the needs of those in need, which reduces profit margins that would otherwise be achievable. 
  • Using your shop's presence on the High Street and social media reach to promote purely charitable work.

At the bottom, you will be asked how any surplus (profit) will be used.  Here are some ideas:

  • Used to subsidise your work in the following year to enable those in need to access your services.
  • Reinvested back into the business to enable you to achieve more.

CIC Articles Of Association

Download and complete the appropriate articles of association.  This is a substantial legal document that can appear quite daunting, but all you really need to do is fill in the blanks, so it’s not as difficult as it might first appear. 

Your articles also include an asset lock.  That is, on dissolution, the company’s assets must be given to another CIC or a charity.  You enter the details of the one you choose.  

The are 2 types of articles for CICs:

  • Large membership - for CICs, which have more members than they have directors.
  • Small membership - for CICs, all of whose directors are members of the company and all of whose members are directors of the company.

In addition to this, if your company will be limited by shares, there are additional types of articles:

  • A schedule 2 company limited by shares is only permitted to pay dividends to specified asset locked bodies, or other asset locked bodies with the consent of the Regulator.
  • A schedule 3 company limited by shares is permitted to pay dividends to shareholders who are not asset locked bodies, including private investors, but the payment of a dividend to a private financial investor is subject to a dividend cap.

In my experience, the vast majority of CICs are Limited By Guarantee and are small membership. 

CIC Company Formation - Online Registration

The simplest way to create your CIC is by using the online registration portal.  However, you can also apply by post.

You’ll need to create a Government Gateway user ID and password for your company, as part of this process.  Make sure you store the ID number, password and recovery word.  You don’t need these again for your registration, but will in the future. Be aware that the system will time-out, so if you have a break for a cup of tea, save your work before you do.

What you’ll need:

  • Your Form CIC36 and articles to upload, in pdf format.
  • One or more SIC codes. You can find these here, but you can type in words relevant to your company and the system will show you options you might choose.
  • Details of your company, such as its registered address.
  • Details for each director, such a full name, addresses, date of birth, occupation, nationality and personal information to be used for electronic signature (such as your mum’s maiden name). For a CIC LBG, you will need at least 2 directors.
  • A credit card or Pay Pall account pay the fee (currently £27).

At the end, you’ll be asked to check all the details you’ve entered.  I always copy and paste these and save them into a Word document, in case the application is rejected and you have to apply again; it happens sometimes. 

Once you’ve registered, it usually take a couple of days to be processed. 

CIC Registration Options

If you don’t like the idea of doing it yourself, there are numerous online companies that will do it for you. Be careful about accepting the headline price, as they will add VAT and then encourage you to select all sorts of additional services. You may wish to have these, but be aware that this can significantly increase the cost, so only choose those you need.  

I also provide a CIC registration service at a cost of £160, to help fund the costs of my free Charity Excellence Framework.  That’s more than the online companies charge.  I don’t have their fancy computer systems, but I do provide a much more personal service and resources, such as my funder list.  Details here.

Registering As A Community Amateur Sports Association(CASC)

Being a CASC isn't a legal structure, but registration with HMRC, which can have significant tax benefits, such as tax relief on income, gains and profits from some activities, Gift Aid repayments on donations and business rates relief.  It's similar to, but not the same as the tax benefits a charity receives. 

To qualify, you must register with HMRC.  At least 50% of members must take part, you must be open to the whole community and have affordable membership fees.  You'd also need to amend your articles of association, to reflect the CASC rules.  They provide model clauses that you can use. 

Setting Up A CIC - Make It A Huge Success

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