CICs v Charities
Charities must be established exclusively for charitable purposes: CICs can be established for any lawful purpose, as long as their activities are carried on for the benefit of the community
Charities have certain tax advantages that CICs do not have. In return for those advantages, charities are subject to more onerous regulation than CICs
The CIC legal form was specifically designed to provide a purpose-built legal framework and a “brand” identity for social enterprises that want to adopt the limited company form.
CICs will be free to operate more commercially than charities (e.g. CICs limited by shares can pay dividends to individual shareholders, subject to a cap), but stakeholders in CICs will still have the assurance of community benefit provided by the asset lock and transparency about their activities ability through the community interest report.
A charity may, however, own a CIC and the CIC would be permitted to pass assets to the charity. This for example enables a CIC to run a charity shop and pass all the profits to the charity that owns it.
Why would an organisation want to be a CIC instead of a charity?
There is no doubt that charitable status is exactly right for many who wish to further charitable objectives and it is likely that most organisations operating for the public benefit (and who are eligible for charity status) will choose to be charities, not least for the fiscal advantages.
The sort of people who will want to set up a CIC will typically be entrepreneurs who want to do good in a form other than charity.
This may be because:
a) They are looking to work for community benefit with the relative freedom of the non-charitable company form to identify and adapt to circumstances, but with a clear assurance of not-for-profit distribution status.
b) Members of the board of a charity may only be paid where the constitution contains such a power and it can be considered to be in the best interests of the charity. It means that, in general, the founder of a social enterprise who wishes to be paid cannot be on the board and must give up strategic control of the organisation to a volunteer board, which is often unacceptable.
c) The definition of community interest that applies to CICs is wider than the public interest test for charity. CICs are specifically identified with social enterprise. Some organisations may feel that consequently this is a more suitable option than charitable status.
The Regulator of Community Interest Companies Room 3.68, Companies House, Crown Way, Cardiff, CF14 3UZ. Tel: 029 2034 6228 (Voicemail) Fax: 029 2034 6229 E-mail:firstname.lastname@example.org www.cicregulator.gov.uk