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What is a CIC and how does it differ to a registered charity?


There are alternatives to launching a charity when you wish to do good in your community or help a specific cause. One of these is creating a CIC.


CIC stands for ‘Community Interest Company’, and in some cases, setting up your organisation on this basis may be more suited to your aims than creating a registered charity.


A CIC is still an altruistic entity, in that it invests/benefits a community or section of the population. As any standard business would do, a CIC sells products and/or services to attain revenue, which is another huge difference between this kind of organisation and a registered charity.


A CIC provides limited liability to the people running the organisation. Equipment and other assets can be in the name of the CIC, as opposed to an individual, and governance is via directors and shareholders rather than trustees—which makes it more suited to people who own/have owned businesses previously. A CIC can sell shares to its members to raise capital and pay its directors/board.


It also takes a lot less time to set up a CIC in comparison to the registering and launching of a charity, which is done via an application to Companies House.


CICs adhere to the Companies Act, whereas registered charities have to conform to The Charity Act.


The paperwork

You need to define the purpose of the CIC you intend to launch; this means creating a ‘community interest statement – Form CIC36’. Essentially, this is a loose business plan that sets out your CIC’s objectives and mission statement, as well as details of the outcome(s) you’re looking to achieve and who will benefit.

You will also need to create an ‘asset lock’. This is a legal statement that limits any of the CIC’s assets to those that solely benefit its social objectives. This also sets a limit on how much the entity can pay its shareholders as dividends.


Just as a charity must, a CIC has to create a constitutional document—Form IN01—which sets out how the organisation will be governed and by whom. The CIC regulator has templates that you can use to help form your own. There is a £35 fee payable to Companies House for the processing of your CIC registration, and this can be completed online.


CIC accounts need to be filed each year, as with any business. So must Form CIC34, which is an annual depiction of activity for the attention of the CIC regulator.


The practicalities

Where will you run the CIC from—will you have a registered office/workplace, or will it be run from your home? Given that a CIC is run more like a business, with different financial constraints to a charity, it’s feasible that premises will be rented.


Who will help you? Do you plan to employ staff/create jobs? CICs and social enterprises can be incredibly viable businesses; however, it’s what happens to any revenue earned and the structure of the organisation that make a CIC different to both a business and a charity.


Funding

Depending on whether your CIC is limited by shares or by guarantee will affect the funding you could achieve. The latter’s structure is more like that of a registered charity, so it may appeal to funders—much more than one that pays dividends to its members at least, as you’d fully expect.


If your CIC is limited by guarantee, you would perhaps be more successful applying for funding from the business world, rather than charitable trusts and foundations, given how similar your organisation will be to a typical business.


Banking

The procedure associated with a CIC is largely the same as with a charity, and it also requires as much due diligence. There should be at least two signatories on the bank account for withdrawals and transfers. A CIC’s accounts are filed in the same way as any other business; however, it’s also wise to file a CIC Report that reiterates the organisation’s charitable intentions, and which states if any dividends have been paid, etc.


Business planning

We’re increasingly becoming a more socially conscious world. What with the focus on climate change and how we’re polluting the environment, to ensuring people in third world countries get a fair wage for a day’s work.


Social enterprises such as CICs focus on worthy issues and use their business acumen to earn money that can be put to good use within communities and for a good cause. Some CICs also benefit their locality by providing jobs to people who may otherwise struggle to land one.


There’s a common misconception that a CIC, being ‘not for profit’, can’t make a decent revenue nor pay its shareholders, but this is a myth. Most organisations of this kind absolutely and consciously strive to make a decent profit, which they then roll back into the business to grow the operation, as well as invest in their community. If dividends are paid to shareholders/staff, these are capped, to ensure that there’s enough revenue left to support its chosen cause.