Community Interest Company V Ltd Company
A Community Interest Company is a non-charitable company which purpose is of benefit to a community or a social cause. A limited company, which is one of the most popular forms of business structure, is generally owned by shareholders and the business run with a view to making a profit and paying a return to the shareholders of the business.
Reporting
CICs are regulated by the Regulator of Community Interest Companies and there is generally more compliance and paperwork required by a CIC than a LTD. On setting up of the CIC a Community Interest Statement (form CIC36) needs to be completed. This is essentially a business plan for the CIC which demonstrates to the Regulator that the company satisfies the required tests to be a CIC.
Once a CIC is up and running, each year financial statements must be submitted to Companies House, as well as an annual report (form CIC34) which is mandatory in the UK. The annual report includes such things as directors’ renumeration; details of what the CIC has done for the benefit of the community; dividends declared; how it has involved stakeholders; detail of any transfers of assets (see Asset Lock below).
Limited companies and CICs of a certain size are exempt from audit as long as they meet at least two of the following:-
Turnover less than £10.2 million
Total assets are less than £5.1million
Less than 50 employees
Tax
Urban myth ….CICs don’t pay tax. This is incorrect CICs are subject to corporation tax. CICs are not entitled to any specific corporation tax exemptions. Donations to charity which the CIC makes are tax deductible when calculating the tax charge. Charities on the other hand are exempt from tax (on most income) however, charities have a lot more onerous reporting requirements and are subject to certain levels of audit or independent examination dependent on income levels. Limited companies are also subject to corporation tax.
What is the Asset Lock?
This means that the assets of the CIC, which include any profits/surpluses, are retained within the CIC and used for the purposes which the CIC was formed. Transfers of assets can be made under the following circumstances:-
sale of asset made for market value and the value is retained within the CIC
transfer is to another CIC or another asset locked body (with consent of the Regulator)
made for the benefit of the community
The asset lock does not effect the day to day use of the assets within the CIC. No such asset locks are required within limited companies.
Dividend Cap
Private investors in a CIC are limited to the amount of dividends they can vote from the CIC, being:-
Shares issued between 01 July 2005 and 05 April 2010 5% above Bank of England base rate
Shares Issued after 06 April 2010 is 20% of the value of each share
The aggregate dividend cap is limited to 35% of distributable profits
Converting an Ltd to a CIC
This can be done with some paperwork and company law steps being followed!