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Social enterprise and Community Interest Companies
Episode 6920th June 2021 • I Hate Numbers: Business Improvement and Performance • I Hate Numbers
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Social Enterprise and Community Interest Companies are a great way to do good and make money.

They go together like a well fitted glove.  Social Enterprise means business that wishes to do social good, be entrepreneurial, and make money.  A Community Interest Company, or CICs for short is a great vehicle to run your social enterprise through.

This week’s podcast looks at Social enterprise and Community Interest Companies, the what, why and when of CICs

Listen to find out more.

Social Enterprise and the details of CICs

Firstly, Social enterprise is about making a profit and doing good at the same time. It can be anything from running an ethical coffee shop, to providing clean water in developing countries.  Secondly, CICs are companies with features different to traditional companies. These features include the asset lock, community interest test, and halfway house between a charity and private company.

Moreover, you can choose your own path with social enterprise.  You can start your own business, or work for someone else who shares your values. With CICs there's no need for compromise on either side of the equation - you get both financial security and social impact that will last long after you've left work behind!

Social enterprises are businesses that generate profit and make a positive difference to society. They are not just small projects; they can be large scale like the Eden Project and Big Issue.

CICs and Charities

If you're looking for a way to help your community, but don't know where to start, this podcast is for you.

A CIC (Community Interest Company) is a different form of company set up by anyone with the intention of benefiting their local community. They are not charities and they do not have charitable status. This means that they will need to pay tax on any profits made from trading activities.

However, if forming a charity is in your cross hairs then a CIC can be the first step on that path - Charities can be converted from CICs, and have CICs running in tandem with them.

There are many benefits to setting up a CIC.  Theses include being able to offer shares and attract investment from individuals who want to support your work.  You can take advantage of government grants and funding schemes.  Above all you have more control over how you operate without the restrictions of charity over how you run your organisation, and make and use money..

Listen to find out more.

What next

What new types of business are you looking for?

We're here to help you explore how these new types of business might work for your organisation or project. You may find it helpful if you're looking for ways to turn your idea into reality,  Contact me If you're already running an enterprise but would like some help on how best to do this. I'll be happy to see what we can do together!

Help me share Number Love by telling your friends and family about the show.  Listen now and Subscribe to I Hate Numbers, so I can send it straight to your inbox every week with all the latest updates from I Hate Numbers podcast! are

Links

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https://tunein.com/podcasts/Business–Economics-Podcasts/I-Hate-Numbers-p1298505/



This podcast uses the following third-party services for analysis:

Chartable - https://chartable.com/privacy

Transcripts

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A community interest company, or CIC for short, fills the gap between charitable and traditional for-profit businesses. It's designed for those who have an interest in solving social problems, giving you more opportunities to make money from your work. As a model of social enterprise, it takes some beating.

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You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

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Hi folks. My name is Mahmoud. I'm an accountant for over 26 years that's been helping businesses disentangle, unravel the complexity of finances, improve their money, attitude and mindset, make more money in their business, save time, and save tax. What's not to love about that? Now, in this week's episode of I Hate Numbers, I'm going to be looking at community interest companies as a model for social enterprise, and particularly we're going to drill down, to have a look at what is meant by social enterprise,

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what are community interest companies, and some of the aspects of community interest companies, such as a community interest test, the type of CIC community interest company you can have, what an asset lock is, and also the contrast between a CIC and a charitable organisation. Let's crack on with the podcast.

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Now, social enterprises are more than just companies that have a social conscience. They are businesses with a mix of businesses and social goals. We see two big examples in our lives in terms of the Eden Project and in terms of the Big Issue. Those are classic models of social enterprise. Now, social enterprises make impact while also being financially sustainable, Private businesses, on the other hand, that are owned by their shareholders have different objectives.

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Making profits and delivering social impact in an equal measure is a stretch. Now, social enterprises provide income-generation opportunities that meet the basic needs of people who live in poverty. They are sustainable and earned income from what they sell is reinvested in their mission. Social enterprises however, do not depend on philantropy.

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They can sustain themselves over the long term. Their models can be expanded, or even de-replicated to other communities to generate more impact. Social enterprises work to improve and to maximise financial, environmental, and well-being. They are more and more these days set up CICs, or perhaps, a different type of business structure designed for this purpose.

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Social enterprises can be created by anyone who has a desire and a knowledge necessary to make changes happen. Let's talk about CICs. Now, these were first established back in the UK in 2005. In relative size, they are a small segment of the limited companies that are formed in the UK. There are approximately 2.8 million limited companies in the United Kingdom. CICs account for about 16,000

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of those, but they are certainly increasing in popularity and take-up. Now, since they have grown a number, we note that the diversity of the activities they undertake expands. The legal structure supports a wide range of activities from very small scale projects to multimillion-pound health services covering all industry sectors and are in every area

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of the UK. Now, CICs were established to deliver community benefits. They do operate as businesses; however, they are different and they do differ compared to private companies. They can provide investment returns to investors, but the primary goal of a CIC as a model of social enterprise is to reinvest those funds to provide more products or services, not just to reward shareholders like private companies.

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The primary, the underlying purpose and ethos of a CIC is to benefit the community rather than private profit. I'd like to drill down a little bit more now in terms of what's meant by this idea of community in a community interest company. Now, the essential feature of a CIC is that its activities are carried on for the benefit of the community.

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It's important that you've got a clear picture of who you intend to serve. A community for CIC purposes can either be the entire population or it can be a definable group, a definable segment within your local geographical area. The community you serve though will be wider than just the members of your CIC.

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Now, because of the public interest in local-based organisations and initiatives, it is not that uncommon for groups of volunteers to create their own CICs without any assistance whatsoever from outside sources. Now, most cases, your community should be easy to define. For example, it could be the residents of I Hate Numbers town, NHS workers,

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or the young unemployed, to give three examples. Now, having looked at the idea of what is social enterprise, having looked at what CICs are, and the idea behind community, I'm now going to explore and have a look at what's called the community interest test and the main purpose of a CIC is to provide community benefits rather than to benefit the individuals who own, run, or work in them.

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Now, this core principle is set out in the community interest test. Now, a company satisfies the community interest test if a reasonable person might consider that its activities are carried on for community benefit. Now, if a CIC is the way you wish to go forward and you apply to be registered as a CIC, you must provide in your application form to the regulator

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evidence that you will satisfy the community interest test. Now, to help the regulator decide whether you will satisfy that test, you have to deliver and write up a community interest statement. Now, this test focuses on your primary and underlying motivation, and how your CIC will benefit your community.

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It will be looking at the purposes set up by your company, the range of activities you'll be engaging in,and who will benefit from those actions. Let's recap where we are so far. We've talked about social enterprise, what that is. We've talked about the CIC model. We've talked about the idea of defining community and the important community interest test that must be completed on application to form a CIC.

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Another consideration that you need to think about is what type of CIC can you be. Now, what do I mean by that? A company, which is fundamentally what a CIC is, can be one of two types. Your CIC can either be limited by shares or it can be limited by guarantee. Now, limited by shares companies typically are found for businesses that are there as profit as their primary objective.

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Now, that means that the company is legally separate from the people who run it. The finances are separate from your personal ones. You have shareholders and any post-tax, any after-tax profits can be retained by you and distributed accordingly by what we call dividends. Now, a company limited by guarantee,

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on the other hand, again, it is a company. It's usually found in the not-for-profit sector, and with a private company limited by shares, it is also legally separate from the people who run it. Also, the finances are different to your personal ones. The differences are though, it has guarantors with a guaranteed amount and profits that are generated are reinvested back into the company.

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A CIC is a company, but it does have distinctive features compared to a normal, limited by guarantee company, or a company limited by shares. A CIC is fundamentally a hybrid model, a halfway house between a charity and a private company. There is a feature of that that is a vital feature and is very particular and peculiar to CICs, and that is called an asset lock.

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Now, you've got to understand that the asset lock is a real vital feature of a CIC and it's important that you understand its importance before you set up a CIC because it has permanent long-term consequences. The asset lock is designed to ensure that your assets and profits are fully used for community benefit.

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The main constituent elements of the asset lock are as follows. Your CIC must not transfer the assets below the full market value. It can, however, do that if it goes to another asset-locked body, or it's for community benefit. A CIC limited by shares is restricted to how much dividend can be paid to private investors.

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And the CIC limited by shares, by the way, is a great way to attract commercial investment, to attract those people who have money to invest, but also want to achieve some social good, and they can be rewarded by dividends. If your CIC no longer exists, if it's dissolved, any surplus assets must be transferred to another asset-locked body

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once all the liabilities of the CIC have been met. An asset-locked body, by the way, is typically an organisation that has the same outlook, the same objective, the same community purpose as you do. It can be a charity or it can be another CIC. So, let's recap what we've covered. We've talked about social enterprise. We've talked about what a CIC is.

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We've talked about the different types of CIC. We've talked about the community interest test and the idea of what community represents. What I want to round up on though is this decision that you might make between forming a charity or forming a CIC. Now, a few heads-ups here to take into account. It's far quicker to create and form a CIC compared to a charity.

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On average, a charity can take anything between three to six months to create and incorporate and CIC can be done in a much quicker time scale. Another major difference between a CIC and a charity is that in a charity, if you wish to retain strategic direction, strategic control, and also work for the organisation, it's very difficult to get paid for it, and charity regulations would normally prohibit that.

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However, if you create a CIC, you can be part of the governing body. You can take charge in the strategic direction, and you can get paid for your work, for running your organisation, your CIC. It's important to stress, a CIC is not a charity, and a charity is not a CIC. Not everything that benefits the community is legally seen as charitable, and you cannot automatically set up a charity even if your organisation benefits the community.

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There are different expectations, different regulations that govern those two types of entity. Now, if you wish to set out a charity in the future, initially create a CIC, and at some point in the future you convert that to a charitable organisation. It's normally a route that we recommend to clients who are very keen to get their organisation going,

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perhaps establish some sense of purpose, get funding, get a proof of concept, and in the long term, look to create a charity. It's worth noting that a CIC can be converted into a charitable company, and also that a charity can have a CIC as a separate trading subsidiary. Let's round up folks. Now, in conclusion, the world is full of opportunities.

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Businesses can be started from anywhere and any time. It's a good idea for you to get as much information on the business type you want before taking steps in that direction. Now hopefully, I've piqued your interest, and I'd love it if you subscribe and listen for more informative podcasts. For more business, and finance news, and advice, and tips, don't forget, subscribe.

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Tune in to my weekly podcast. Listen to our weekly vlogs and blogs. Check out the show notes for some useful links. And until next week, folks, have a brilliant week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode.

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We look forward to you joining us next week for another I Hate Numbers episode.

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