Giving a hand up, not a handout
Social enterprise and community interest companies
In these challenging economic times, it’s good to see social enterprises helping communities to fill the gaps left by reduced government funding. But if you’re a socially-minded investor who’s looking to set up a business in your local area, is a community interest company (CIC) the ideal structure?
What’s a CIC?
A CIC is a commercial business, but one that aims to generate profits that benefit the community – a social enterprise, in other words. As long as the CIC doesn’t exist for political aims, there are few restrictions and they usually provide support to deprived communities in the UK and abroad.
The CIC must be registered at Companies House in the same way as a normal company. You can choose whether to have a public company limited by shares, a private company limited by shares or a company limited by guarantee. The CIC remains subject to the same company and insolvency laws and obligations as any other company but is viewed as a flexible alternative to a charity or an industrial and provident society.
Create Foundation is one example of a social enterprise which has really made an impact on the local community. Sarah Dunwell, the CEO of Create, gave us her summary of what a social enterprise should aim to do.
“We describe social enterprise as being the bridge between the charity world and the business world. We take the best from both: we take the charitable purpose and mission and the heart of what the charity world wants to achieve, but we deliver those purposes and outcomes by using the best from the business world.”
How does a CIC differ from a charity?
Unlike a charitable company, the CIC has statutory clauses which include an asset lock. These clauses provide legal protection against demutualisation and windfall profits being paid out to its members and directors without all the checks and balances of mutuality or charitable status. Stakeholder involvement is integrated into its governance through its annual community interest report. It’s able to access the debt market for loans and bonds. One of the main aims is that it should be self sustaining.
A CIC can’t be a charity but a charity can own a CIC to run its trading activities. Some companies with charitable status may find it difficult to keep their assets dedicated to public benefit. The main differences between a CIC and a charity are as follows:
- A charity must be established exclusively for charitable purposes. A CIC can be established for any lawful purpose as longs as it's carried on for the benefit of the community.
- Charities are subject to more onerous regulation.
You can read more about Create Foundation and the different ways of funding a social enterprise in the winter 2011 edition of our Private Client magazine, available in December 2011.
