Our society benefits from the willing contribution of enthusiastic volunteers with all manner of skills. But it can't all be done for nothing. With the best will in the world, we each have to earn a living. Social enterprises, clubs and charities need proper legal structures to protect the people who run these enterprises - and the law recognises this.
Clubs, charities and other social enterprises can limit their liability in much the same way as a business - but in forms that are recognised as "not-for-profit". This ensures that the people who run these valuable services are protected from unacceptable risks.
The employee benefit that nearly broke a charity
One charity that approached us for help had come close to losing everything as the result of an employee benefit scheme. They woke up to the realisation that the pension scheme was running into deficits that could put the charity and its trustees at serious financial risk. As a registered charity - but not a limited company - there was no legal limit to how much they could lose. They have now been re-registered as a Charity Limited by Guarantee.
Yes, in some cases. A private limited company (LTD) can convert to a CIC, whether it is "limited by shares" or "limited by guarantee". A charity cannot convert to a CIC. It must adopt new Memorandum & Articles of Association and it must change its name to include the ending "CIC" or "Community Interest Company" (instead of LTD or Limited).
Unfortunately it cannot. Company law allows a limited company (LTD) to convert to a Community Interest Company (CIC) – but only in the same format or structure. A company limited by shares can only convert into a CIC limited by shares. A company limited by guarantee can only convert into a CIC limited by guarantee. See our page comparing the difference between the shares and guarantee formats for more information.
That depends on the policies of the funding body concerned; but CICs have been around long enough now to be recognised by most experienced funding bodies. A CIC cannot seek contributions from the general public.
A charity is not allowed to "permanantly 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.
Yes. A CIC can run much like a normal business provided it acts responsibly and reasonably. Its actions are subject to scrutiny by the CIC Regulator.
A limited company should act in the interests of its shareholders and employees. But, subject to the Memorandum & Articles of Association, it anything that the directors wish, including working for and giving to good causes. However, as a "for-profit" organisation it will not attract funding bodies to support its social enterprise activities. If you already own a company and wish to set it up in a manner more appropriate to a social enterprise you can convert to a Community Interest Company.
For charities and companies limited by guarantee it is
not permissible to pay salaries to trustees. This rule can be
circumvented in certain special 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 it its main driving
force cannot be on the board of Trustees.
There is a difference in processing time between the
different types. The slowest is the Community Interest Company (CIC)
because it has to pass through the normal Companies House procedures
AND be checked by the CIC Regulator's office. Furthermore, CICs cannot
be formed electronically. We have to submit documents by post. So it
can take up to four weeks to complete the process.
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 time to think through the options and discuss it with an advisor if you need help. It is better to get the right solution slowly than to rush into the wrong result. 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.
A single registration social enterprise company
overseen by a Regulator and recognised by
funding bodies as not-for-profit.
CIC Pros and Cons
A company registered at Companies House but with no shares. Run by Trustees who each put up a nominal cash guarantee for the company. Register as a company then register the company with the Charity Commission.
Charity Pros and Cons
Before Community Interest Companies became a legal option this was the only way to incorporate a club or similar social enterprise as a not-for-profit venture. Run by Trustees, it remains an option and is the solution for organisations that are not permitted to register as CICs.
Guarantee Pros and Cons
A proposed new type of limited liability organisation that will be registered direct with the Charity Commission. The CIO concept only passed the proposal stage in December 2008 and it is likely to be some time before it enters into law.
Social Enterprise in the "Big Society"
When David Cameron talks about “The Big Society” he is encouraging a culture change that is already underway. Periods of economic uncertainty create two kinds of response: those who put their heads down and hope the problems will go away; and those who come out fighting. Read more...
or give us a call on
0117 370 2725
Community Interest Company
£163 (£145 + VAT)
Convert LTD to CIC
£153 (£135 + VAT)
Charitable Company Limited by Guarantee
£143 (£124.67 + VAT)
Company Limited by Guarantee (not charity)
£143 (£124.67 + VAT)
We are called Ordered Management because we take care of the details.
That’s why our clients like us and keep coming back. Some of them took the trouble to write and tell us how pleased they are. See what they said and how Ordered Management can help you.
Social enterprise companies must state their Aims (Objects) in their foundation documents. Aims statements outline what the company aims to achieve for the good of the community. To help formulate your aims check our examples pages:
All Charities, Public Limited Companies (PLC) and other companies with a turnover above £5.6 million must have their annual accounts formally audited by suitably qualified Accountants. Smaller companies (other than charities) are not obliged to have an audit.
The cash guarantee put up by Trustees is forfeited if the company fails. It may be any amount but is normally a nominal sum. The default guarantee in companies Ordered Management sets up is £10.
In charities or companies limited by guarantee the Directors are called Trustees. Each Trustee has one vote in the company and each of them put up a cash guarantee in case the company fails.