Community Interest Companies (CICs): Could This Be the Right Business Model for You?

Welcome to another episode of From Creative

Passion to Profit.

On this week's episode, I'm gonna continue the

theme that we started in last week's episode of

Social Enterprises, and specifically talk about

one particular model, the CIC, or community

interest Company to give it its full name.

Now if you are interested in running a business

that changes lives, impacts in a positive

way on communities and still generates profit,

so you still have that profit motivation in

mind, a social enterprise could be right for you.

Now, the whole of a social enterprise and

more specifically a community interest, is

this idea of not only generating profits, but

actually use those four community benefits.

Now I'm gonna specifically unpack

why it's so special, whether this could be

the right path for you.

And I'm gonna explore what A CIC actually

evolves, something called the community

interest test, the different types of CIC.

And yes, there are different types, the

asset lock and the difference between

a CIC and a charity.

Let's crack off.

Now a social enterprise is more than just a

business that's got good intentions, a good heart.

It's a business that exists to solve problems,

whether those are social, community-based,

environmental, and at the same time making money.

And when I'm talking, making money, I'm talking

about making profits.

What every entrepreneur, what every business

owner should be aspiring to do is that

sweet spot between the charity world.

And the corporate world.

That's a social enterprise value.

Now, social enterprises do trade.

Don't confuse them with charities necessarily.

They generate income in their own right,

but instead of that money going into

shareholders' pockets, nothing wrong with that.

If you're a private company, most or all

of the profits are reinvested back into

the organization to help carry out,

fulfill their mission.

Did you know that the Eden Project and

the big issue are two big examples of

social enterprises?

Now, these aren't just feel good names.

To make people feel warm and fuzzy.

These are fully operational businesses,

creating jobs, paying tax, generating

profits, and solving real world issues.

Profit for good is a good way of looking at it.

Now, social enterprises are not dependent just

on donations or grants.

If they were.

By the way, they would not be able to be called

social enterprises.

They survive and thrive by selling

goods and or services.

And as they grow, the models can be copied,

emulated, and rolled out in other places as well.

And don't think, by the way, these are babies.

They generate immense amount of wealth,

have immense impact here, and they blend

the entrepreneurial.

With the ability to do good as well.

Now, how does CICS fit into this picture,

particularly now the idea of a community

interest company?

Believe it or not, it's come out to its

20th anniversary and it was introduced in the

In my experience, I've over 30 odd years, it's

one of the most popular legal structures for

a social enterprise.

It's a hybrid between a traditional, limited

company and a charity.

Now, even though they represent a

small percentage.

Of the overall limited companies,

United Kingdom, approximately 3 million.

They are growing and I've certainly seen

a growth in their popularity based on the

incorporations that we do for other clients here.

We can certainly see there's more traction

going on, but why?

Well, they offer flexibility.

And credibility.

Whether it's a small local food bank or a

nationwide training providers, cis operate

across a great number of sectors and corners

of the United Kingdom.

The key bit with the CIC is that it is a

business at its heart, but its main purpose is

to benefit the community.

However, one defines that it can make a

profit and there's a solid note folks.

Whatever your organization here,

if you're not covering your costs

and making a profit, then your reserves

will dwindle down.

We're not in the business of running hobbies here.

We're in the business of doing good.

Now.

CICS can employ staff.

It can also attract external investment,

and here's the twist.

It's the profit that's being used primarily to

serve a social purpose.

Now, if that ticks the boxes for you,

then this could be your great ideal.

I wanna focus now on this community aspect, the

part of the community interest company,

and you've gotta be really clear of who

your community is.

It could be broad, the entire population

of the United Kingdom, for example.

It can be more focused like young, unemployed

people in Leicester.

Carers in your local Bower or creative

professionals across the United Kingdom,

and it's actually part of the incorporation

procedure that you define that community.

Clearly for the regulator, whatever group

you serve, they need to be clearly defined.

CICS are built for community, not for the

people running them, and that's a real important

part of the process.

It's also why groups of volunteers come together

to create cis, even without outside help.

That drive comes from within the

community again.

Broad or more focused.

Now, part of the incorporation procedure,

the test you, if you wanna call it, that,

is the community interest test.

And the test asks, would a reasonable

person believe that your business exists to

benefit the community?

And when you apply to set up A CIC, you have to

provide a short community interest statement,

which explains what your business aims to do,

who's gonna benefit, and how it's all gonna

work in practice.

One of the stumbling blocks in most

applications that I've seen is that it's not

clearly articulated.

At the outset, the regulator will check that

your goals and actions match your claims.

And if you pass the test, you're halfway there.

But if your idea is just a traditional business

with a little bit of a social spin, that

might not be enough and your application

can be rejected.

Now, having done that, you then gotta decide

the type of CIC.

You want a structure either limited by shares

or limited by guarantee.

Lemme break these down.

The COSC limited by shares is there if

you want to attract external investors

who provide those funds, but they want a

financial reward by, say, typically by dividends.

You can issue shares just like a regular company,

and you pay a limited dividend to shareholders.

Typically, there's a dividend cap of 35%.

That means people can support your mission and

get a financial return.

On the flip side, a CIC limited by

guarantee, there aren't any conventional

shareholders.

The guarantee of the founders, if you want,

is limited typically to a pound, and it's usually

made up of members who guarantee a small amount

if that eventuality happens, that the company

has to be wound up.

And this is very common for

not-for-profit models.

Either way, you are still a company separate

from the people run it and responsible for

its own finances and companies acts will be

coming into place for A CIC now the big one.

Is what's called the asset lock.

Now, this, in my opinion, is one of the

big differentiators between A CIC and what

I call a conventional private company.

This is a legal promise that your assets that

you've got within your organization

will only be used to benefit your community.

You can't sell off the business and

keep the profits.

You can transfer the assets that you've got

or sell the assets to somebody else, but it's

gotta be at market value.

If your CIC decides to be no more.

Then those assets typically are transferred

to another comparable CIC or charity, and

that's reflected within the articles of the CIC.

What does it matter?

Well, it gives the reassurance to funders,

partners, and the public that you're not in it

just for personal gain, but the assets and

resources, the funding you've received is

going for a particularly defined purpose.

Now, a big question I hear quite often

is, should I set up a CIC or should it

indeed be a charity?

Now the trade off is as followed.

A CIC in my experience is quicker and easier

to set up than a charity on average.

CIS that we set up for clients will take from

the initial application being completed to

submission, anything from between five to

10 days to turn around if it's a charity.

My experience has been that it can take

several weeks, normally several months, and

it's not unheard of.

I come across cases that it could take up to nine

months to a year to get a charity incorporated.

A CIC, you get more control.

You run the business, you make those key

decisions, you get paid for your work.

But in a charity, it's the trustees who

aren't the people who run the organization,

who work unpaid.

They can't benefit directly from the

charity's income without strict approval.

And the flexibility can make A-C-I-C-A benefit

for founders who wanna stay closely involved.

Now remember, a CIC is not a charity.

That means there'll be some grants or tax breaks

that you can't access.

Like gift aid that a charity may do.

Remember, you can convert a CIC to a

charity later on down the line, and that's

something that should feature in your planning.

Now some organizations use both.

So charity, it's not unusual for it to have

a separate CIC, which it effectively owns,

if you wanna use that term very loosely as

it is trading arm to generate the income.

Let me recap.

A social enterprise combines both business

and social goals.

Cics are illegal structure.

That are there to support that objective when you

set one up, you need a clear community purpose.

You've gotta satisfy the community interest test.

You make a decision about the shares or

guarantee type company.

You've gotta think about the asset lock.

If you are a CIC, by the way, already established.

And you haven't got that asset lock well

defined, who the beneficiary organization

is, then contact us and we've amended our

school such to actually change that for cis.

Cis offer more control in charities, but

fewer tax breaks.

Now it's not for everybody, but it's for

the right people with the right objective.

The right mission.

Now, I hope this episode has given you a clearer

picture of what a social enterprise and

CI IC is, and if you've got questions you are

thinking of setting up a CI CSL, check

out the show notes.

There's some links to help get you started.

And if you're ready to have that chat that

spark a purpose into a thriving, sustainable

business, let chat.

If you found this talk, which I hope you have

done, share it with those you feel will

get benefit from that.

Until next time, keep the passion burning

and remember, plan it.

Do it and profit.