CIC registration can be a daunting task. As a highly regulated sector, social enterprises face a large amount of bureaucracy. This means correctly completing a range of complex legal documents.
This is understandable, as community interest companies enjoy a number of benefits that traditional charities and for-profit companies do not. As such, it’s necessary for the government to ensure that only eligible organisations can become CICs.
Today, we’ll be looking at how to complete your CIC in five steps. But first, let’s start with the basics.
What is CIC Registration?
Forming a CIC means setting up a company which uses its profits to help the local community. In plain terms, you’ll be required to follow a similar process you would when setting up any other company.
However, you’ll also need to fill in some additional paperwork, especially with regards to how and when your work will benefit the community. We’ll look at this in more detail a little later.
Of course, it’s also worth considering whether CIC registration is right for you.
You can think of a CIC as a happy medium between full charity status, and a traditional for-profit company. For example, CICs can pay directors, issue shares, and enjoy easier financial reporting than other charities.
On the other hand, they don’t enjoy the same level of tax relief as other charity structures.
Once you’ve decided on CIC registration, here are the steps you’ll need to follow.
1. Decide on a CIC Structure
There are two different types of CICs. These are:
CICs limited by shares,
CICs limited by guarantee.
When a CIC is limited by shares, the company has a stated amount of capital. This is then divided into shares. When someone pays the full value of their shares to the company, they have no personal liability for the company’s debts, but they can receive dividends.
However, remember that CICs are supposed to benefit the local community first and foremost. Because of this, dividends to shareholders are limited at 35% of the total profits. The remaining 65% must be reinvested into the local community.
By contrast, a CIC limited by guarantee, cannot issue shares. Instead, the owners are liable for the company’s debts, up until a set limit. As the CIC does not issue shares, it also can’t pay out dividends to the owners.
2. Complete a CIC36 Form
A CIC36 form is used to outline how exactly your company will benefit your local community. This allows regulators to ensure that your aims are actually beneficial to the community, and that your CIC can credibly achieve them.
First of all, you’ll need to fill in basic practical information about your CIC, such as its name and formal address.
Beyond this, the CIC36 form is divided into two sections:
Section A: Community Interest Statement - This requires you to outline the benefits you’ll offer to the community, including who will benefit, how they’ll benefit, and why this matters.
Section B: Activities and Related Benefits - Here, you’ll outline the specific activities you’ll undertake, and how these will have an impact on the community.
It’s helpful to think about Section B in terms of how your company differs from a for-profit company which offers similar services. For example, will you offer subsidised prices, or even free services to members of the community?
You should also use Section B to outline how you’ll use any surplus profits to benefit the community, remembering that at least 65% of your profits must be reinvested.
3. Nominate an Asset Locked Body
An asset lock is one of the defining features of a community interest company. Essentially, this means that assets owned by a CIC can only be transferred to another organisation which offers benefits to the community.
For example, in the event of a liquidation, the CIC’s owners can’t simply take over the assets.
Instead, you are required to nominate another asset locked organisation, which will receive any residual assets if you dissolve or wind up your CIC. This can be:
A charity,
Another CIC,
A Charitable Incorporated Organisation (CIO)
A permanent registered society,
The international equivalent of any of these bodies.
It’s also possible to nominate multiple asset locked bodies to receive your assets.
4. Create Articles of Association for a Social Enterprise
You’ll also need to register your CIC with Companies House, by filling in an IN01 form, as well as creating articles of association. Articles of association are the formal rules about how your company will be run.
This is also sometimes called your CIC’s constitution.
Different rules include how and when you’ll select new board members, as well as the roles and responsibilities of the company’s directors.
As part of the CIC registration process, the UK Government provides a number of templates for your articles of association. You’ll need to select the right one based on:
Whether your CIC is limited by guarantee or shares,
The size of your CIC.
Here, your CIC might be classed as either small or large, depending on whether it has more members than directors, or vice versa.
5. Send Your Documents Online or by Post
Once you have gathered all of the required documentation, and completed each of the above forms, you can formally complete your CIC registration. This can be done online or by post.
If you choose to register your CIC online, you can upload all of your documents to a single government portal, and pay the required fee of £27 for registration. You can expect to hear back about your application within a few days
Alternatively, you can send your completed documents to Companies House by post. This will incur the slightly higher cost of £35, which should be paid by cheque. You’ll then hear back within fifteen working days.
If you want any help or advice with your CIC registration, S3 Solutions specialise on all aspects of forming and managing social enterprises in the UK and Ireland. Contact us today to learn more about how we can help with community interest companies.