Posted on 25th August 2021 at 16:15
CAN A CIC BUY AND SELL GOODS OR SERVICES?
Yes. A CIC can run much like a normal business provided it acts responsibly and its actions are subject to scrutiny by the CIC Regulator.
CAN A CHARITY BUY AND SELL GOODS OR SERVICES?
A charity is not allowed to “permanently trade.” This means it can run a temporary fund-raising event but not run price list of items permanently on sale. Many charities get round this problem by setting up a separate company (CIC or Guarantee) that dedicates its earnings to the charity.
CAN WE PAY OUR EXECUTIVES AND DIRECTORS?
For charities and companies limited by guarantee it is not permissible to pay salaries to trustees. This rule can be circumvented in certain exceptional cases. For instance, where a trustee serves as part of his or her official position (e.g., a church or religious leader, a mayor or council leader). In some cases, this means that the person who founded the organisation and its main driving force cannot be on the board of Trustees.
For CICs there is no such restriction provided the salaries can be shown to be reasonable (this is subject to scrutiny by the CIC Regulator).
HOW LONG DOES IT TAKE TO REGISTER A CIC COMPANY?
There is a difference in processing time between the distinct types. The slowest is the Community Interest Company (CIC) because it must pass through the normal Companies House procedures AND be checked by the CIC Regulator’s office. Furthermore, CICs (Community Interest Company) cannot be formed electronically. We must submit documents by post. The process is usually completed within 4 weeks.
On the other hand, companies limited by guarantee (whether or not they are to be charities) can be registered electronically. Because they need special documents they are not as fast as regular limited companies, but they are normally processed in one or two days.
IS IT FASTER, OR BETTER, TO FORM A REGULAR LTD FIRST AND THEN CONVERT IT TO A CIC?
No, it is not. CIC conversion takes about as long as forming a new CIC and, of course, it increases the cost. There is also a risk that you will end up with the wrong structure because most LTD formations default to the “limited by shares” format, which may not be the right format for your CIC. Take the time to think through the options and discuss it with one of our advisors if you need help. You can convert a “limited” into a CIC; but, if you know from the outset that it is a CIC you require, it is best to order a CIC from the start.
WHAT ARE THE PROTECTIONS FOR THE DIRECTORS AND MEMBERS/SHAREHOLDERS?
As with normal companies the CIC benefits from "limited liability". This means that the CIC will be liable for the actions of its directors and directors will not incur personal liability, except in certain exceptional circumstances (such as where the director has acted fraudulently or continued to trade when the CIC has become insolvent). Shareholders will only be liable up to the amount of their contribution (where a CLS), and members only up to a nominal amount (usually £1) in the event it winds up (where the CIC is limited by guarantee).
WHO REGULATES CICS? ARE THE REPORTING REQUIREMENTS THE SAME AS FOR NORMAL COMPANIES?
CICs are regulated by the CIC regulator with what is intended as a "light-touch". This compares with the relatively "heavy" regulation of charities by the Charity Commission. However, the CIC regulator will respond to complaints from stakeholders and has considerable powers to act to protect the community interest.
As with all companies, CICs are required to file annual accounts and an annual return with Companies House. In addition, a CIC must file a community interest report annually, which will explain how the CIC pursued the community interest and involved its stakeholders and will, if applicable, give details of payments to directors and any dividends paid.
WHAT DO I NEED TO DO TO SET UP A CIC?
Firstly, you will need to make an application. The application will set out the CIC's social purpose and the activities it will carry out to achieve it. Provided there are no issues raised by the CIC regulator or Companies House, the CIC should be registered around two to three weeks from the application date.
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