How to Set Up A Community Interest Company - CIC Registration

This is a step by step guide on how to set up a community interest company (CIC), with everything you need to know about CIC registration, including a dummies guide on how to register a CIC yourself.  There is a FAQs list at the end on setting up and registering a CIC.

What Are the Different CIC Company Structures?

There are 2 kinds of CIC - limited by shares or by guarantee.  Almost everyone chooses a CIC limited by guarantee (LBG).  Only CICs LBG can convert to a charity (Foundation CIO model).  A CIC can have either a large membership or a small membership set of articles.  Almost everyone chooses small membership.

How Many Directors Does a CIC Need?

A CIC must have a minimum of 1 director.  However, many CICs wish to fundraise and I think that at least some funders may not be willing to make a grant to a CIC with only one director.  I would suggest 2 or 3 directors.

Who Can Be a CIC Director?

Most people can be directors.  You must be at least 16 and cannot be an “undischarged bankrupt”, or be a disqualified director.

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SETTING UP A CIC COMPANY

Setting up a CIC and registering a CIC company is much quicker and simpler than charity registration.  To set up a CIC, you'll need:

• a 'community interest statement', explaining what your company plans to do.
• an 'asset lock'- a legal promise stating that the company's assets will only be used for its social objectives, and setting limits to the money it can pay to shareholders.
• a constitution - you can use the CIC regulator's model constitutions.
• to get your company approved by the Community Interest Company Regulator - your application will automatically be sent to them.

How Long Does it Take to Set Up a CIC?

It will inevitably take you some time to find directors and prepare the paperwork but online submission shouldn't tale more than about an hour and CIC companies are usually registered within about 4 days.

How Do I Register a CIC Company?

You need to register a CIC with Companies House and the CIC Regulator but the process of registering a CIC covers both.  You can find the CIC Regulator’s guidance on how to register a CIC here and the detailed CIC registration guidance here.

This article is basically a dummies guide to setting up a CIC step-by-step, because I like things that are simple.  In registering, you will come across some legal terminology and this can be confusing.

How to Set Up a CIC Company - Choosing a Name

How to check, choose and register a CIC company name, including the rules and regulations.

What is a Community Interest Statement (CIC Form 36)?

A Community Interest Statement (CIC F36) is what you use to satisfy the CIC Regulator that your company will meet the Community Interest Test.  That is, its purposes are in the community or wider public interest and access to the benefits will not be confined to an unduly restricted group.  You can download CIC F 36 and continuation form here.

Community Interest Statement (Section A)

This is who you provide benefit to, how you do that and what the benefits are.

Activities & Related Benefit (Section B) 

Complete the 2 columns, using the continuation sheet, if necessary.

• Activities are what you do – selling products or services, such as running classes or events.
• Benefits is the impact your activities have on the community, such as promoting employment, wellbeing, health or learning. Start each with ‘The community will benefit by…….’ can make this easier to do.

Include in this section how your CIC company will be different from a commercial company, providing similar services or products for individual or personal gain.  Here are some ideas about the types of things this might include:

• You charge below market rates, or subsidise some products/services.
• Free venue space, or priced below market rates.
• Running activities that are not commercially viable, which the community needs, by subsidising these from another part of the business.
• Small class sizes to meet the needs of those in need, which reduces profit margins that would otherwise be achievable.
• Using your shop's presence on the High Street and social media reach to promote purely charitable work.

At the bottom, you will be asked how any surplus (profit) will be used.  Here are some ideas:

• Used to subsidise your work in the following year to enable those in need to access your services.
• Reinvested back into the business to enable you to achieve more.

What are CIC Company Objects?

A CIC company is required to have company objects and cannot be a political party or a political campaigning organisation. You may carry out whatever activities you wish to within your objects but may not carry out any outside of these.

I usually use the Who, How and What above, plus Where to create a short but broad object(s).  Personally, I usually word this to be charitable, as this may help with fundraising.  Charitable funders may only make grants for activities that are exclusively charitable.

What is a CIC Asset Lock?

Your articles also include an asset lock.  That is, on dissolution, the company’s assets must be given to another CIC or a registered charity.  You enter the details of the one you choose.

What are CIC Company Articles Of Association?

Download and complete the appropriate CIC company articles of association.  This is a substantial legal document that can appear quite daunting, but all you really need to do is fill in the blanks, so it’s not as difficult as it might first appear.

CIC Articles of Association - Different Types

There are 2 types of articles for CICs:

• Large membership - for CICs, which have more members than they have directors.
• Small membership - for CICs, all of whose directors are members of the company and all of whose members are directors of the company.

In addition to this, if your company will be limited by shares, there are additional types of articles:

• A schedule 2 company limited by shares is only permitted to pay dividends to specified asset locked bodies, or other asset locked bodies with the consent of the Regulator.
• A schedule 3 company limited by shares is permitted to pay dividends to shareholders who are not asset locked bodies, including private investors, but the payment of a dividend to a private financial investor is subject to a dividend cap.

In my experience, the vast majority of CICs are Limited By Guarantee and are small membership.

HOW TO REGISTER A CIC - ONLINE REGISTRATION

You're now ready to register your CIC.  You'll need your community interest statement (CIC F36) and  company articles of association (both in pdf format), the details about your company and directors, and a credit card or Pay Pal to pay the registration fee.

CIC Company Online Registration

The simplest way to set up your CIC company is by using the online registration portal.  However, you can also apply by post.

You’ll need to create a Government Gateway user ID and password for your company, as part of this process.  Make sure you store the ID number, password and recovery word.  You don’t need these again for your registration, but will in the future. Be aware that the system will time-out, so if you have a break for a cup of tea, save your work before you do.

What you’ll need:

• Your Form CIC36 and articles to upload, in pdf format.
• One or more SIC codes. You can find these here, but you can type in words relevant to your company and the system will show you options you might choose.
• Details of your company, such as its registered address.
• Details for each director, such a full name, addresses, date of birth, occupation, nationality and personal information to be used for electronic signature (such as your mum’s maiden name).
• A credit card or Pay Pall account pay the fee (currently £27).

At the end, you’ll be asked to check all the details you’ve entered.  I always copy and paste these and save them into a Word document, in case the application is rejected and you have to apply again; it happens sometimes.

Once you’ve registered, it usually takes about 4 days to be processed.

CIC Registration Options

If you don’t like the idea of doing it yourself, there are numerous online companies that will do it for you. Be careful about accepting the headline price, as they will add VAT and then encourage you to select all sorts of additional services. You may wish to have these, but be aware that this can significantly increase the cost, so only choose those you need.

I also provide a CIC registration service at a cost of £160, to help fund the costs of my free Charity Excellence Framework.  That’s more than the online companies charge.  I don’t have their fancy computer systems, but I do provide a much more personal service and resources, such as my funder list.  Details here.

Community Amateur Sports Association(CASC) HMRC Registration

Being a CASC isn't a legal structure, but registration with HMRC, which can have significant tax benefits, such as tax relief on income, gains and profits from some activities, Gift Aid repayments on donations and business rates relief.  It's similar to, but not the same as the tax benefits a charity receives.

To qualify, you must register with HMRC.  At least 50% of members must take part, you must be open to the whole community and have affordable membership fees.  You'd also need to amend your articles of association, to reflect the CASC rules.  They provide model clauses that you can use.

CIC Company Definitions

Here are simple definitions for the main terms you are most likely to come across when setting up and registering a CIC company.

• Community Interest Company (CIC) - a special type of limited company, which exists to benefit the community rather than private shareholders
• Limited by Guarantee - a type of company, usually a non-profit, which has guarantors, rather than shareholders.  Usually invests any profit back into the company.
• Form CIC 36 - application to form a CIC.  You will need to upload this as a pdf.
• Community Interest Statement - is the Form CIC 36, which is required to confirm that the CIC will provide benefit to the community
• Articles of Association - written rules about running the company.  In a charity, often referred to as your constitution.  You will need to upload these as a pdf.
• Memorandum of Association -  a legal statement signed by all initial shareholders or guarantors.  The online system will create this for you.
• Asset Lock - a registered charity or other CIC that would be given any remaining assets, in the event your company is dissolved.  Enter details into your articles.

Here are simple definitions for terminology you will come across during the online CIC registration process.

• Persons of Significant Control (PSC) - those who control the company, not always its directors, but for small CICs, it usually is.
• Guarantors - promise an agreed amount of money to the company if it cannot pay its debts.  For CICs, it's a nominal £1, and the directors would normally be the guarantors.
• SIC codes - standard industrial classification codes provide Companies House with a description of your company's nature of business.  There are codes for health, education, sport and just about everything else, but not non-profits.  The default code often used for us is 88990.

Please note that I am not a lawyer, so am not competent to provide professional advice.  Equally, the definitions above are simple summaries of their more complex meanings, as a guide to understanding only.  If you need proper advice, you need to engage a lawyer.

Registering and Setting Up A CIC Company FAQs

• Which is the best CIC structure to choose?  The vast majority of people choose a CIC limited by guarantee.  It's the only type that can convert to a charity.
• Can a CIC convert to a CIO? A CIC limited by guarantee (LBG) can convert to a charity, but a CIC limited by shares can’t.  The vast majority of CICs are LBG.
• Is a CIC classed as a charity?  A CIC isn’t a charity.  CICs are non profit companies that can have a wider range of social aims than charities and which are regulated by the CIC Regulator.
• What are the advantages of a CIC?  A CIC is generally quicker and simpler to set up, and less bureaucratic to run than a charity.
• What are the disadvantages of a CIC?  CIC's cannot fundraise as successfully as charities and are not eligible for charitable tax reliefs.
• Can a CIC company fundraise?  CICs can fundraise but, generally, not as successfully as a charity and funders may have specific requirements it must meet.
• How many directors must a CIC have? A CIC must have a minimum of 1 director. There's no maximum but charitable funders may require more than 1 director in order to consider making a grant.
• Can directors of a CIC be paid?  CICs have the option to pay their directors remuneration. However, the community interest test and the asset lock apply as much to the remuneration of directors as to any other area of a CIC's business.
• Is a CIC director liable?  CICs are incorporated so directors have limited liability but there are certain circumstances where they may liability, particularly in respect of wrongful or fraudulent trading.
• Who regulates CICs?  The Office of the Regulator of Community Interest Companies decides whether an organisation is eligible to become, or continue to be, a CIC.
• How do I shut down a CIC?  A CIC can only be struck off the register if the CIC its self makes the application and must be made on behalf of the directors.
• How much does it cost to register a CIC?  There is a £27 filing fee paid to Companies House.  There are organisations that will do it for you. Expect to pay something like £100 to £200, plus the fee.
• Do you pay tax on a CIC?  CICs are taxed in the same way as normal companies, including being subject to corporation tax and VAT.  They are not eligible to claim Gift Aid.

Setting Up A CIC - Make It A Huge Success

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This Guide to CIC Companies Doesn't Constitute Professional Opinion

I am not an accountant, nor a lawyer and no advice can be applicable to all organisations, in all circumstances, so this resource is no more than a guide to understanding.  I've summarised the regulatory guidance and augmented this with my own experience and Internet research, but I am not competent to provide professional advice.  I have included links to the source guidance to enable you to check this yourself and, if you think you might need professional advice, use Help Finder to find pro bono support.