CHARITABLE LIMITED COMPANIES There are three
COMMUNITY
INTEREST
COMPANIES
This information sheet gives a brief introduction to the
new legal structure available since 1st July 2005 for
social or community enterprises. It is called the
community interest company or CIC, and was created by
the Companies (Audit, Investigations and Community
Enterprises) Act 2004.
You can find full guidance on what a CIC is and how register as one from:-
http://www.cicregulator.gov.uk/
Or contact them by one of the following means:
Telephone: 029 20346228 (this is a 24-hour voicemail service) Fax: 029 20346229
Email: cicregulator@companieshouse.gov.uk
Write to:
The CIC Regulator, CIC Team
Room 3.
68, Companies House Crown Way,
Maindy, Cardiff CF14 3UZ
What sort of organisations can become CICs?
A CIC can take 3 forms:
• Company limited by shares
• Company limited by guarantee
• Public limited company (plc)
An organisation wishing to become a CIC must have objects (aims) and undertake activities that are ‘for the benefit of the community’. This means it exists to benefit the wider
community rather than for individual private gain or to promote the interests of a small group of people. CICs are designed to be businesses governed by company law so they cannot
register as charities, nor can political parties or other political organisations register as CICs. A registered charity can, however, convert into a CIC if the Charity Commission gives its permission (see page 3).
What does ‘for the benefit of the community’ mean?
This is defined in the 2004 Act as ‘what a reasonable person’ might think it means. The Government has appointed a regulator to scrutinise each application to register as a CIC, and wants this person to exercise a ‘light touch’ in making decisions. In his introduction to the Government’s guidance on CICs, he gives some examples:
• Research into environmental pollution • Preservation of wetlands
• Provision of advice services
• Preservation of languages/culture • Encouragement of sport
• Establishing a museum
• Hire of equipment for short-term needs • Support for community projects
• Contracting to provide services and using the surpluses from this for the benefit of a community.
Who is ‘the community’ for the purposes of a CIC?
The Regulator’s guidance gives a number of examples: • The residents of a town or district of a city
• People in a town or district who have particular needs, such as elderly and/or
disabled people, the young unemployed, people suffering from a particular illness, or who want to learn certain skills to improve their employment opportunities
• Groups of people oversees who are in need – e.g. small scale farmers in
a developing country. Certain groups will not be classed as a ‘community’: e.g. a family or group of friends, the employees of a particular business or the members of a particular club. Organisations set up purely to benefit those groups and not the wider community, won’t qualify as CICs.
What are the other features of CICs?
In order to register as a CIC, an organisation must adopt a model constitution (or
‘memorandum and articles of association’) which contains certain compulsory features that are unique to CICs.
• It must have the words ‘Community Interest Company’ or c.i.c. at the end of its name
• It must have an asset lock in its articles of association. This means that its property and assets must be used solely or mainly for its objects and it cannot dispose of them except to a charity or another CIC
• It must also have a cap on distributions in its articles which will set a limit on what percentage of income or profits it can pay out to investors as dividends or loan interest repayments. This is currently fixed at Bank of England Base Rate + 5%
• It will be managed by its directors but with only limited powers given to members or shareholders. There will also be ‘reasonable’ limits on directors’ salaries and benefits to make transparent its obligation to operate ‘for the benefit of the community’.
• It must produce specific information in its annual report to explain and justify its ‘community benefit’ work and status and show that it has involved its stakeholders in its operations.
How do you register as a CIC?
A new company must submit 4 documents to Companies House plus a filing fee of £35:
• Memorandum and articles conforming to the model for a CIC
• Companies CIC36 – community interest company statement
• Companies form 10 – declaration of first directors and company secretary
• Companies form 12 – application to register as a limited company.
How do you convert into a CIC?
An existing company (other than a registered charity) can convert into a CIC by amending its name to include the words ‘c.i.c.’ and its memorandum and articles of association to comply with the features listed above. A company can only make these amendments by passing special resolutions at a quorate general meeting of its members. The general meeting must be called on at least 21 days’ notice and the resolutions must be passed by at least a 75% majority vote of members present and entitled to vote at the meeting.
The resolution must be filed at Companies House together with:
• A filing fee of £25
• Form CIC37 and a copy of the resolution within the specified time limits
• An amended copy of the memorandum and articles.
A charitable company that wishes to convert into a CIC can only do so with the written consent of the Charity Commission and after its trustees/directors have taken independent financial advice. Once it has the Commission’s consent, the charity must pass the
appropriate special resolutions and submit them, with the above documents, to Companies House with a copy of the consent and a filing fee of £25.
The Regulator’s role
• All applications for CIC registration or conversion are first examined by the Regulator before being passed on to the Registrar of Companies. If the application is successful, the Registrar will register the CIC and issue the necessary documents.
• If the Regulator refuses an application, he notifies the Registrar who will send the decision and the Regulator’s reasons for it to the applicant.
• Applicants who are aggrieved by a refusal may appeal initially to the Regulator who will pass it on to an independent Appeals Officer appointed by the Secretary of State.
Applicants must file their appeal within 2 months of the Regulator’s decision and the Appeals Officer will investigate the decision and set a timetable for meetings and representations. The Appeals Officer’s decision to grant or refuse
registration/conversion will be given in writing and state the reasons for the decision.
How are CICs financed?
CICs are able to access grants and soft loans from the Community Development Finance Institutions (CDFIs) which are not available to private sector businesses and investors can get 5% tax relief if they invest in CDFIs. You can get more information on these in Yorkshire and Humberside from www.cdfa.org.uk/members/resultt.php.
However, the Government expects CICs to finance themselves primarily through inward investment and trading. The main forms of inward investment are:
• issues of shares (for CICs that are companies limited by shares) on which limited dividends can be paid out from the trading profits
• loans to a CIC from individuals and businesses on which limited interest will be paid (that is, less than the full commercial lending rate)
• issuing debentures. Debentures are similar to mortgages: they are loans to the CIC which are secured on its assets and are probably the most attractive to banks, because of the security.
What duties and responsibilities do a CIC’s directors have?
All company directors have duties towards the members of the company, to third parties who General information on finance and grants is available at www.businesslink.gov.uk/
further information and potential sources of capital for CICs include:
www.governmentfunding.org.uk www.uksif.org/ www.access-funds.co.uk www.esf.gov.uk/
www.j4bgrants.co.uk www.esmeefairbairn.org.uk/ www.grantsonline.org.uk www.unltd.org.uk/
www.biglotteryfund.org.uk www.cafonline.org/venturesome www.bridgesventures.com/
Duties to members:
• Each director has a personal duty to
• act honestly and in good faith when dealing with the membership;
• conduct the company’s business with a reasonable degree of care and skill, given
her/his knowledge and experience; and promote the success of the company for its members’ benefit.
• Collectively, directors must hold annual general meetings once in each calendar year and not more than 15 months apart and ensure that members receive an annual report, the annual accounts and any proposed resolutions in good time beforehand according to company law regulations
• All directors should declare their personal financial interests in their company’s dealings, so they do not make ‘secret’ profits or gains from its business.
• No director must act while disqualified from being a director (e.g. because of criminal convictions for dishonesty, personal insolvency or being under a disqualification order)
• All directors must ensure they act within their powers and the objects of the company.
Duty to third parties
• To deal honestly and in good faith especially in relation to creditors.
Duties to Companies House
• File annual accounts and annual return within the time limits. NB Late filing will result in the company being automatically fined. The fines start at £100 for being 1 day to 3 months late, 3 months plus 1 day to 6 months late is £250, 6months plus 1 day to 12 months £500, over 12 months late the fine is £1000. The time limit for filing is 10 months to the day after the company’s financial year end. From 06.04.08 this period will be 9 months.
• Notify changes of directors or the company secretary on the correct forms within 14 days after each change
• Notify other changes (e.g. address of registered office, address where company records kept) on the correct form within 14 days after the change.
What is the role of the Company Secretary?
Every company must by law have a company secretary but this person does not have to be a member or director of the company unless the company’s Articles of Association require it. From 06.04.08, private companies will no longer be required to have a secretary but must still ensure the duties below are performed.
Company secretaries are administrative officers who must make sure that the company keeps certain records and provides the information required by the Companies Acts.
These include:
1 Maintaining the statutory registers, that is:- • the register of members
• the register of directors and secretaries • the register of directors' interests
2 Ensuring that Companies House forms are filed promptly.
3 Providing members and auditors with proper notice of meetings as specified in the Articles of Association and ensuring the correct papers (e.g. accounts, annual reports, previous minutes and copies of proposed resolutions) are sent out with the notice. 4 Sending Companies House copies of special, extraordinary and written resolutions and agreements within 15 days after they have been passed/agreed
5 Keeping (or arranging for the keeping), of minutes of directors' meetings and general meetings.
6 Ensuring that people can inspect the company’s records. For example, members of the company and members of the public are entitled to a copy of the company's register of members, and members of the company are entitled to inspect the minutes of its general meetings (but not directors’ meetings) and to have copies of these minutes.
7 Custody and use of the company seal. Companies don’t need to have a company seal but if they do, the secretary ensures its safekeeping and authorised use.
What is the difference between a charitable limited company and a
CIC?
Advantages and disadvantages of being a charity rather than a CIC Advantages
• access to funding that non-charitable bodies cannot have (e.g. from many grant- making trusts)
• credibility with the public and ability to represent ‘community’ interests • free access to the advisory powers of the Charity Commission
• tax and rating exemptions from: – corporation tax on ‘surplus’ income – capital gains tax
– stamp duty on leases and conveyances – inheritance tax
– business rates (80% rate relief)
None of these tax reliefs are available to CICs.
Disadvantages
• time-consuming registration process with the Charity Commission
• restrictions on their objects and powers. (Many of the aims available to CICs may not be legally ‘charitable’)
• restrictions on commercial taxable trading and on non-party-political activity. (CICs have no such restrictions provided these activities are within their objects and powers.)
• directors cannot usually be paid from a charity’s funds except for reasonable out- of-pocket expenses. (Directors of CICs may be paid ‘reasonable’ remuneration depending on the scope of their duties and the size of the enterprise.)
Below is a flowchart to help an organisation decide whether it should be a charity or a CIC.
Should a CIC be a share company or a guarantee company?
Whether a CIC should register as a share company or a guarantee company depends on how it is financed and how wants to apply its surplus funds. If it is primarily financed by outside investors, it will need to be able to distribute some of these surpluses each year to its investors. So it must be able to issue shares so it can pay annual dividends. If it is to be financed by grants or by loans repayable from trading receipts and therefore needs to invest all its surpluses in developing its business, then it can register as a guarantee company, which will have no shares. A CIC that is formed as a trading arm for a charity will usually be a share company with the charity owning all the shares.
Will your board members act unpaid in respect of all their services, except for legitimate out of
pocket expenses
Is all surplus income to be applied only for the objects and not paid out to members Are your aims(objects) entirely charitable
CIC Yes
Yes
No
CIC No
Yes
No CIC
Where to go for more help and advice
SCEDU and Sheffield Enterprise Clusters are both based at:
53 Mowbray Street Sheffield
S3 8EN
SCEDU
Tel: 0114 281 2222 Fax: 0114 281 4173
Email: mowbray@scedu.demon.co.uk Sheffield Enterprise Clusters:
Tel: 0114 201 5260
Email: sheffieldenterpriseclusters@scedu.org.uk
Voluntary Action Sheffield
Bev Cross, Legal Consultant The Circle
33 Rockingham Lane Sheffield
S1 4FW
Tel: 0114 253 6634 Fax: 0114 253 6601 Email: b.cross@vas.org.uk CIC Regulator
CIC Team
Room 3.68, Companies House Crown Way, Maindy
Cardiff CF14 3UZ
Tel: 029 2034 6228. 24-hour voicemail Fax: 029 2034 6229
Email: cicregulator@companieshouse.gov.uk Web: www.cicregulator.gov.uk/
INFORMATION SHEETS available from VAS :
Accessible Organisations Acquiring and Managing Premises Action Planning Business Planning Child and Vulnerable Adult Protection Closing Down Community Interest Companies Constitutions Contracts and Procurement Data Protection Disciplinary and Grievance Procedures Employing a Worker Handling Redundancies Health and Safety Incorporated Charities Insuring your Organisation Involving Volunteers Legal Structures Management Committees Monitoring and Evaluation Parents and Carers at Work Quality Assurance Starting Up Trading and Fund-raising
The Circle 33 Rockingham Lane Sheffield S1 4FW Tel: 0114 253 6600 Fax: 0114 253 6601
Email: info@vas.org.uk Website: www.vas.org.uk
Registered charity no: 223007
