Social Economy Network
ngimg0
Home arrow Social Economy arrow Legal Structures
Legal Structures Print E-mail

Community Interest Company

Community Interest Companies (CICs) are limited companies with special additional features, created for the use of people who want to conduct a business or other activity for the community benefit and not purely for private advantage. \this is achieved by a ‘community interest test’ and ‘asset lock’ which ensure that the CIC is established for community purposes and the assets and profits are dedicated to these purposes.

Registration of a Company as a CIC has to be approved by the regulator, who also has a continuing monitoring and enforcement role.

Companies can be structured either as a Company Limited by Shares or Company Limited by Guarantee. They do not have the tax advantages of charitable status. The CIC form has been specifically created for social enterprises and is increasingly recognised by funders. This is a new company form, introduced in 2005 and registration is carried out by the CIC Regulator at Companies House.

More information is available from www.cicregulator.gov.uk  029 203 46228

Cooperative

Cooperatives are businesses with the following special features:

  •  they are usually corporate bodies, registered as either industrial and provident societies or limited companies
  • they are democratically managed
  •  they will either be common ownership or joint ownership
  •  their governing documents will exhibit the seven cooperative principles
  • there are several types of cooperatives including worker cooperatives and community cooperatives.

Social Firm

A social firm is a business set up specifically to create employment for disabled people. There are three core values to which social firms will subscribe within their businesses, oriented around empowerment, employment and enterprise. The core values are:

  • A commitment to the social and economic integration of disabled people through employment. A key means to this end is economic empowerment through the payment of market wages to all employees.
  •  Supportive workplaces, where the working environment is one that provides all employees with support, opportunity and meaningful work.
  • Market orientation and a social mission (‘businesses that support’ rather than ‘projects that trade')

Social firms aim to have a workforce of which at least 25% are people with disabilities and to generate at least 50% of their income through sales.

For more information contact Social Firms UK at www.socialfirms.co.uk

Social Franchising

An emerging model of social enterprise, social franchising is “the process by which social enterprises replicate their successful business formulas, enabling other people or organisations to start up and run them elsewhere. It is based upon the concept of franchising in the commercial sector”. Social franchising avoids ‘re-inventing the wheel’ and can help the growth of successful enterprises.

Industrial and Provident Societies

An IPS is a corporate body registered under the Industrial and Provident Societies Acts 1965-78 and must be approved by the Financial Services Authority (FSA). To qualify for registration, a body must either be a ‘bona-fide cooperative’ or a ‘society for the benefit of the community’. IPSs are administered by  the Registry of Friendly Societies, a section of the Treasury. Their governing documents are known as ‘rules’.

The IPS cooperative format is common among housing, consumer and worker cooperatives and credit unions. Its characteristics are: one member, one vote: return on capital must be limited: if profits are to be distributed amongst the members, this must be done equitably; no artificial restrictions on membership.

The IPS’ society for the benefit of the community format is common amongst housing associations, but is gaining some popularity amongst some other forms of voluntary activity and can be very appropriate for democratic, non-profit organisations. It’s characteristics are similar to those of the cooperative, but profits and assets must not be distributable amongst members and the society must be able to show that ‘it will benefit persons other than its own members’.

Possible Legal Structures

Company Limited by Guarantee with Charitable Status

Pros                                                    Cons                                                       
 Legal identity Costs money to set up and run a company
 The ability to enter into contracts in the company's name Buraucracy - companies must comply with the statutory requirement of the Companies Orders
 Limited liability (i.e. members limited to £1 liability) 

Charitable Status

Because of its not-for-profit nature, a company limited by guarantee with charitable objectives can apply for charitable status.

 Pros                                                      Cons                                                                        
 It presents an image of integrity Limitation on trading unless in pursuit of objectives
 It opens up sources of funds Charities should not campaign poltically
 If there are any surpluses, a charity will not be charged corporation tax 

Community Interest Company (CIC)

Pros                                                           Cons                                                                    
 Easy to set up Cannot become a charity
 Statutory "lock" on the assets and profits of CICs Cannot chose who to pass assets on to if wound up
 A "community interest test" which companies must pass in order to be registered Have legal requirements to produce returns to CIC regulator
 a CIC regulator responsible for ensuring the CICs comply with their legal requirements 
 

 Community Benefit Company (Industrial & Provident Society)

 Pros Cons

 Set up specifically to conduct a business or trade

 Cost - rules of the IPS are submitted to the Registrar of Friendly Societies who will register the IPS on payment of a fee.
 Run and manage by their members Lack of privacy - in common with the company structure, the IPS is subject to public scrunity as annual returns are made to the Registrar
 Can raise funds by issuing shares to the public 
 Profits are not distributed amongst members, or external shareholders, but returned to the company 
 Can apply for charitable status, allowing them to raise capital through public grants and charitable trusts.  If approved, they're known as exempt charities-reporting to the FSA