What’s a Community Interest Company?

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A Community Interest Company, or CIC, is a specific and defined type of company in the UK. It is designed to cover businesses that aim to work for the benefit of the public, but do not qualify for charitable status. It offers many benefits while being more flexible than the standard governing charities. The term may be used in other countries but will not necessarily have the same legal implications.

An organization would usually prefer to be a community interest company rather than a traditional corporation in order to protect its assets. With a traditional company, it is usually expected that management will use and even sell assets to maximize profits; in some trim levels this may be a mandatory target. With a CIC, the rules mean that assets cannot usually be transferred to owners or shareholders. Where assets are sold, they must be sold at a fair market price and the proceeds used to achieve the company’s social objectives. If a Community interest company is wound up, its assets must be transferred to another company with a similar purpose.

The main advantage of running a community interest company instead of a charity is that the criteria for qualification are much weaker. There is a wider range of activities and objectives that can qualify a company for CIC status. A CIC also has far more flexibility in how it conducts itself than a charity. For example, it doesn’t have to be that rigorous to justify that a given decision or policy meets the organization’s stated goals. The biggest disadvantage is that a CIC does not have the same tax advantages as a charity.

There are some specific restrictions on setting up a Community Interest Company, other than not being a charity. As to be expected, it cannot engage in any illegal activity. Unlike a traditional company, it cannot be formed with the intention of serving a particularly small section of society. It cannot operate to carry out politically motivated activities.

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