The traditional limited company structure tends to be the favoured choice to run a business, but even then there can be refinements to its structure and mechanics.

The traditional limited company structure tends to be the favoured choice to run a business, but even then there can be refinements to its structure and mechanics. In this article we discuss the role of a Community Interest Company (CIC).

Background

There are various structures by which a business can operate - as a partnership, a company or being run by a sole trader. Generally speaking the traditional limited company structure tends to be the favoured choice to run a business, but even then there can be refinements to its structure and mechanics.

A company can be incorporated by being either limited by guarantee or by shares and can be a public or private company. Alternatively a company may not be intended to make a profit and instead seek to bring benefits to the community and have charitable activities. If the latter is the intention, yet again there are more choices over the structure. One option is known as a Community Interest Company (CIC).

What makes a Community Interest Company useful?

A CIC is a limited company specifically designed to carry out activities that are intended to benefit the community from its income. The underlying purpose of a CIC is to provide benefits to its community as opposed to its members or its officers.

There are several unique aspects of a CIC which differentiates it from a regular company. For instance it will be subject to additional regulation and monitoring from the Regulator of Community Interest Companies (Regulator). One aspect of the Regulator's duty is to ensure that a CIC satisfies a community interest test and is able to demonstrate that it will be able to benefit the community.

Another requirement is to have specific provisions in the articles of association, the main provision of which relates to an 'asset lock'. An asset lock is a mechanism under which a CIC will be prevented from transferring its assets at an undervalue and ensures that the CIC's assets are protected and devoted to the benefit of the community.

What can you do with a CIC?

CICs are flexible in that they can be readily converted from an existing company, charitable company or even a registered society, but they can never have unlimited liability status.

Recently Shoosmiths was instructed to re-register an existing CIC into a Community Interest PLC (CI PLC) so making it into a public company. What made this instruction particularly interesting was that the process was in fact unprecedented. During the process close contact was maintained with Companies House and the Regulator and it was quickly discovered that whilst there was one other CI PLC registered at Companies House in the UK, the actual process of re-registering a CI into a CI PLC had never been carried out before.

Whilst there are available model articles for CICs there are none available for a CI PLC. Notwithstanding these issues the actual procedure is not too dissimilar to a re-registration involving a private to public limited company.

What should be borne in mind especially where time is of the essence, is that there is no same day service available for matters involving CIC re-registration as the involvement and approval of the Regulator is required and in addition a different fee regime will apply.