The perfect vehicle for entrepreneurs seeking a social purpose

Kyle Smith
News, Charities
Kyle Smith

Covid has led to many entrepreneurs seeking to focus their efforts on a social purpose. Community Interest Companies are a great vehicle for them to do just that says Charity specialist Kyle Smith.

Kyle Smith

One of the biggest effects of the Covid pandemic was to make people reassess what they wanted to achieve in their lives – and for many, the conclusion they came to was that they wanted to focus on doing something which benefitted the world around them.

Whilst a few will be able to give up gainful employment altogether, most of us still need to earn a living.  Fortunately, there is a way that individuals can retain their entrepreneurial buzz, while at the same time pursuing a social purpose (rather than simply making a profit).

Community Interest Companies (CICs) are a special form of non-charitable limited company, which exist primarily to benefit a community or to achieve a social purpose.  Unlike a charity, directors of a CIC can still be paid, and the organisation is more corporate in nature – which is reassuring for many people coming from the commercial world.

The statutory basis of a CIC is an asset lock which ensures that the CIC’s funds will be used for the benefit of the company’s social objectives rather than for shareholders.  Although they are regulated by the CIC Regulator, that oversight is much more light-touch than charities experience through the Charities Commission, and in general CICs are easier and quicker to establish than a charity.

Many of the usual protections involved in running a limited company apply to a CIC: limited liability for those owning the company, the same structure (complete with directors and shareholders/members), and the flexibility to set it up as a company limited by shares, a private company limited by guarantee, or a public limited company.

The defined nature of a CIC – and its statutory commitment to a social purpose – means that it is in a good position to request and receive grant funding, as funders are reassured both by the professional structure and the ‘asset lock’, a legal restriction on what can be done with the company’s money.

One of the most important aspects for entrepreneurial individuals seeking to set up an organisation with a social purpose is the ability to retain strategic control and still be paid – this is in stark contrast to charities, where Trustees may not benefit financially.  CIC directors can be paid at a fair market rate, and can even, in limited circumstances, take dividends.

There are a few disadvantages to choosing the CIC structure over becoming a charity, chief amongst which is that CICs pay tax just like any other company, including Corporation Tax, which is about to increase from 19% to 25%. 

Although they are not subject to Charities Commission regulation, CICs do have the same compliance obligations as other companies, including filing annual accounts and maintaining company registers with Companies House.

It is possible to convert a corporate company to a CIC, but not the other way – once a company is a CIC, it can only be dissolved (with assets transferred to another similar organisation), or converted into a charity.

Despite these minor disadvantages, CICs are becoming a more popular way for commercial-minded people to set up organisations with a social purpose. 

In some ways they offer the best of both worlds – the opportunity for entrepreneurs to retain their corporate mindset, to retain control of their own organisation, to fulfil their own vision without recourse to a board of Trustees, while enjoying the fulfilment of doing something with a true social purpose.

Thinking of setting up a social enterprise?  Lovewell Blake’s specialist Charity and Not-for-Profit team can offer expert advice on the best structure, and help you get started.  

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