Ruth Mitchell

Member Article

A New Alternative For Social Entrepreneurs

With Watson Burton LLP Law FirmSince July 2005 there has existed a new type of company in the UK – the Community Interest Company (CIC). To date there are over 100 in existence, including a handful here in the North East. Despite social entrepreneurship being championed within the political establishment here in the UK few people are aware of the purpose of these companies and the legal framework that surrounds them. CIC’s are designed for social enterprises who wish to benefit from the limited liability of the company structure whilst at the same time using profits for the public good. Currently, most of what could be defined as “social enterprises” are charities, companies limited by guarantee or even unincorporated bodies. In order to promote the cause of the social enterprise, the Government has introduced the CIC framework in the hope of raising the profile of this fast growing sector.What are the benefits of becoming a CIC?The CIC structure provides a simple and clear way of locking in the assets of a company in order to dedicate them to public benefit. Currently, this can only be done by applying for charitable status which can be a costly and sometimes fraught process. There is benefit to entrepreneurs also by using the CIC structure. Normally, members of the board of a charity may only be paid where the constitution contains such a power, often meaning that the founder of a social enterprise has to give up strategic control of the organisation to a volunteer board. By using the CIC model, social entrepreneurs can maintain control over the organisation.Organisations which have been refused charitable status may also find it easier to become CICs as the definition of “community interest” is wider than the public benefit test of charities. It will not be possible to set up a CIC for political purposes however. A CIC will also be able to raise finance through a share issue, and consequently pay dividends to investors, though these will be subject to a cap set from time to time by the Secretary of State. This should make a CIC’s ability to raise finance more favourable than that of many charities. One point that should be borne in mind, however, is that CICs will not benefit from the tax status enjoyed by charities. Nonetheless, it is worth bearing in mind the CIC model when contemplating the corporate structure of your proposed social enterprise.For more information on setting up a CIC and the legal framework surrounding this issue please contact Paul Wigham or any member of the Corporate department at Watson Burton LLP (paul.wigham@watsonburton.com).

This was posted in Bdaily's Members' News section by Ruth Mitchell .

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