Community Interest Companies

Community Interest Companies (CIC) – A Good Idea For More Confusion?

Community Interest Companies sound like a good thing. But is it possible they are too good a thing? Any objective person will recognise that the UK has the one of the best company registration infrastructures in the world through Companies House and its associated legal framework. Despite imperfections, company information in the UK is much easier both to obtain and analyse than in any other country. However, the government's plans for yet another type of legal company form, so-called Community Interest Companies, may cause more confusion than clarity.

According to the DTI, Community Interest Companies (CIC) will be a new type of company, designed for social enterprises who want to use their profits and assets for the public good. Before we go much further you may well ask: What is a 'social enterprise'? Is this a more palatable form of 'free enterprise'? Will this new form of enterprise allow future governments to differentiate tax rates for Community Interest Companies as opposed to Profit Interested Companies?

Supporters of Community Interest Companies say that they will be easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure that they are working for the benefit of the community. It is intended that Community Interest Companies would be a new form of not-for-profit limited company, registered at Companies House and regulated not only by company law but also subject to some sort of CIC overseer.

Community Interest Companies will report to this 'independent' regulator on how they are delivering for the community and how they are involving their 'stakeholders' in their activities. Community Interest Companies could be established in England and Wales or Scotland and would have to be dedicated to activities of value to the community. Any future change to the community interest purposes would need the regulator's consent.

This is one area for confusion. As the Law Society said in its comments on the proposals for Community Interest Companies:

We are unclear as to how directors of Community Interest Companies will be able to identify with any certainty who the "stakeholders" in their Community Interest Companies are. Furthermore.introducing other interest groups whose interests the directors must have regard raises difficult questions as to how their duties are to be fulfilled and who may be entitled to take action in respect of breaches of duty.

There are many other issues like this one that the checkSURE team believes deserve serious consideration before legislation is passed to create this type of legal form. However, Community Interest Companies sound quite 'nice', are in keeping with the New Labour project and may well be brought into this session of Parliament (2004). If not carefully considered, such legislation at this time is a mistake will likely undermine the registration and regulatory regime which we proudly say is this best in the world - and will cause even more 'unnecessary' work for a struggling Companies House. More thought is definitely required on Community Interest Companies.