Becoming a CIC

[Will C]

Hi UKBF Community,

A friend and I have set up a business partnership - a community composting and urban farming company - and we are reflecting on what the best governance structure might be for us. Our business is one with community at it's heart and we feel like becoming a CIC might be a good fit, one of the reasons being we feel like this might help us in our search for grant funding and because we have key aims of the business around delivering social and environmental benefit to our local surroundings.

Any advice on how to decide what governance structure we should be would be most appreciated and if any one has set up a CIC or partnership as a social enterprise it would be great to hear from your experience.

Thank you!

Will

 

[Scalloway]

There are helpful links here.

Setting up a social enterprise

Start a business to help people or communities - business structures including community interest companies and co-operatives

www.gov.uk

 

[Ozzy]

Our business is one with community at it's heart

Whether a CIC will be right for you depends on what the above statement means to you and the foundations of the company.

If it means that you will donate all of the company profits to the community and keep none for yourself, everything within the very fibre of the company, how it operates and its very existence is to support and help the local community, then yes a CIC would be a good option.

If you want to work locally, support local businesses by buying local, and perhaps donate some of your resources or profits to the local community then no a CIC is probably not right and a normal commercial company would be more appropriate.

With a CIC if you ever wish to close the company you are not allowed to keep any of the leftover money or assets for yourself, you are legally required to give it all to another charity or CIC that has similar charitable objectives to the CIC you are closing.

 

[Paul Kelly ICHYB]

If you will truly give something 'back' then a CIC could be the right route to take, however, there are more hoops than limited companies and more regulation. It will make it easier to qualify for grants.

Depending on the setup, I have just found out that you could take up to 35% of profits as dividends!

 

[Will C]

There are helpful links here.

Thank you! I had seen these, but still seeking further guidance on how to transfer from a partnership to a CIC or to check of that is even possible.

Thanks

 

[Will C]

Whether a CIC will be right for you depends on what the above statement means to you and the foundations of the company.

If it means that you will donate all of the company profits to the community and keep none for yourself, everything within the very fibre of the company, how it operates and its very existence is to support and help the local community, then yes a CIC would be a good option.

If you want to work locally, support local businesses by buying local, and perhaps donate some of your resources or profits to the local community then no a CIC is probably not right and a normal commercial company would be more appropriate.

With a CIC if you ever wish to close the company you are not allowed to keep any of the leftover money or assets for yourself, you are legally required to give it all to another charity or CIC that has similar charitable objectives to the CIC you are closing.

Thanks Ozzy, very helpful!

Do you know anything about converting from a partnership to a CIC if that were the route we chose to go down?

 

[Will C]

If you will truly give something 'back' then a CIC could be the right route to take, however, there are more hoops than limited companies and more regulation. It will make it easier to qualify for grants.

Depending on the setup, I have just found out that you could take up to 35% of profits as dividends!

Hi Paul,

Thank you for this response, very helpful!

We do feel we will be giving back in several ways and we do want to increase our ability to qualify for grants.

Can I ask where you found the information about the 35% as dividends.

And, are you aware of how to convert from a partnership to a CIC, or if indeed this is something that can even be done?

Thank you!

 

[Ozzy]

Do you know anything about converting from a partnership to a CIC if that were the route we chose to go down?

I used to own a company that provided this sort of support but I sold it about 10 years ago and don't do that anymore, but I can recommend some although I would suggest starting with your accountant because you don't 'convert'. You'd effectively stop one and start the other.

 

[Will C]

I used to own a company that provided this sort of support but I sold it about 10 years ago and don't do that anymore, but I can recommend some although I would suggest starting with your accountant because you don't 'convert'. You'd effectively stop one and start the other.

Thanks Ozzy, very helpful yet again!

 

[eteb3]

The process would be identical to converting a partnership to a company, since a CIC is, before anything else, a company.

You have the usual choice of limited by shares or by guarantee. Unusually, there’s a statutory “asset lock” on either form.

If it’s limited by guarantee you can’t make any distributions out of the company at all (but can pay fairly generous interest on loans you make to the company, if you structure it properly)

If limited by shares, there’s a dividend cap, as Paul says, and if you wind the company up you can get back your capital. But the majority of profit has to be reinvested.

You should do your research carefully on grants: what are your likely grant-makers’ criteria? Some will give only to charities; some to CICs; but not many to CICs with shares, afaict (because the asset lock is only partial).

 

[eteb3]

Can I ask where you found the information about the 35% as dividends.

https://www.gov.uk/government/publi...hapters#shares-dividends-and-the-dividend-cap

 

[Will C]

The process would be identical to converting a partnership to a company, since a CIC is, before anything else, a company.

You have the usual choice of limited by shares or by guarantee. Unusually, there’s a statutory “asset lock” on either form.

If it’s limited by guarantee you can’t make any distributions out of the company at all (but can pay fairly generous interest on loans you make to the company, if you structure it properly)

If limited by shares, there’s a dividend cap, as Paul says, and if you wind the company up you can get back your capital. But the majority of profit has to be reinvested.

You should do your research carefully on grants: what are your likely grant-makers’ criteria? Some will give only to charities; some to CICs; but not many to CICs with shares, afaict (because the asset lock is only partial).

Hi there, thanks for the detailed response, is there some way we could connect to discuss this in more detail?

Thanks

 

[eteb3]

Sent you a DM