A CIC is a new type of company, designed for social enterprises that want to use their profits and assets for the public good.

A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

By using business solutions to achieve public good, the Government believes that social enterprises have a distinct and valuable role to play in helping create a strong, sustainable and socially inclusive economy.

Who will decide whether an organisation can be a community interest company?
The CICs Regulator will consider whether applications meet the criteria to become a CIC.
If satisfied, the regulator will advise the registrar in Companies House who, providing all the documents are in order, will issue a certificate of incorporation as a CIC.

Why be a community interest company rather than a charity?
The sort of people who set up a CIC will typically be entrepreneurs who want to do good in
a form other than charity. This may be because:
• They are looking to work for community benefit with the relative freedom of the
non-charitable company form to identify and adapt to circumstances, but with a clear assurance of not-for-profit distribution status.
• Members of the board of a charity may only be paid where the constitution contains
such a power and it can be considered to be in the best interests of the charity. It means that, in general, the founder of a charity who wishes to be paid cannot be on the board
and must give up strategic control of the organisation to a volunteer board, which is
often unacceptable.
• The definition of community interest that will apply to CICs will be wider than the public interest test for charity.

CICs will be specifically identified with social enterprise. Some organisations may feel that consequently this is a more suitable than charitable status.

COMMUNITY INTEREST TEST
What is the Community Interest Test and what is it meant to achieve?
Community interest is the heart of the CIC and the community interest test is what differentiates CICs from other not-for-profit organisations. Demonstrating community interest is of value to those seeking grant funding or philanthropic investment.

To become a CIC, an organisation needs to satisfy the regulator that its purposes could be regarded by a reasonable person as being in the community or wider public interest. It will also be asked to confirm that access to the benefits it provides will not be confined to an unduly restricted group.

FINANCIAL CONSIDERATIONS
Do CICs have any special tax status?
No, CICs will not enjoy any special tax status as such. They will generally be in the same position as any other organisation in obtaining any tax concessions or grants otherwise available, for example due to their type of activity or location. A charity which becomes a
CIC will lose its charity tax status.

Can community interest companies issue shares?
Yes, in order to raise investment, CICs limited by shares will have the option of issuing shares that pay a dividend to investors. In order to protect the asset lock, the dividend on these shares is subject to a cap set by the Secretary of State.

THE ASSET LOCK
What is the asset lock?
The Asset Lock is a fundamental feature of CICs.
“Asset Lock” is a general term used to cover all the provisions designed to ensure that the assets of the CIC (including any profits or other surpluses generated by its activities) are used for the benefit of the community.

The transfer must satisfy certain requirements. This means that, subject to the CIC meeting its obligations, its assets must either be retained within the CIC to be used for the community purposes for which it was formed, or, if they are transferred out of the CIC, the transfer must satisfy one of the following requirements:
• It is made for full consideration (i.e. at market value), so that the CIC retains the value of the assets transferred;
• It is made to another asset locked body (a CIC or charity, or non-GB based equivalent) which is specified in the CIC's memorandum or articles of association;
• It is made to another asset locked body with the consent of the Regulator; or
• It is otherwise made for the benefit of the community.
• Provision to this effect, as prescribed in the Regulations, must be included in a CIC's memorandum or articles of association. CICs are permitted to adopt asset lock rules that impose more stringent requirements, provided they also include these basic provisions.
• The asset lock will be established in legislation, and will prohibit CICs from distributing their assets or profits to their members, except to the extent permitted where CICs issue equity. The lock will not prevent CICs from using their assets efficiently in pursuit of community benefit; for instance, they will be able to use assets as collateral for finance. The regulator will be responsible for ensuring that the asset lock is maintained, and stakeholders who believe that it is being breached will be able to ask the regulator to take action.

How will we know that CICs are acting in the public interest?
CICs will report annually to an independent regulator on how they are delivering for the community and how they are involving their stakeholders in their activities.

Extracts taken from the Government’s FAQ on CIC
http://www.cicregulator.gov.uk/faq.shtml#general