Charities, trading arms and CICs (oh my!)

This evening the Great Ashby Community Centre Management Association (the charity of which I am a trustee and treasurer) had a meeting with Sara the CIC Regulator to discuss with us whether we should set up a CIC as part of our extension to the Community Centre.

This post is a bit of a memory dump after the meeting whilst it’s still fresh. Not all of the points have been validated/or referenced, so I may follow up when I know more.

So what is a CIC?

Basically a CIC is exactly the same a normal limited company. Either limited by guarantee (CLG) or limited by shares (CLS).

A CIC however has several clauses added to the Memorandum and Articles of the company that ensure that it’s not being run solely for the personal gain of the founders or directors. Basically the clue is in the name, the company must be run in the interest of a community.

It also has several other clauses that enforce the above and prevent the company from being asset stripped should it be sold or taken over (or fold).

These are:

  • Any shares purchase in the company cannot appreciate in value.
  • A maximum of 35% of net profits can be used in dividend payments.
  • A maximum of 20% of the share value can be paid as a dividend
  • The companies assets are locked, and can only be transferred to another CIC or charity for community purposes
  • Investors wishing to loan the CIC money on a performance related interest rate is limited to 10%

If the charity is the sole share holder in the CIC, however there are no limits on dividend payments.

How do you set up CIC?

The company is registered via Companies House as any normal company but has accompanying forms that are processed and forwarded to the CIC Regulator, there is also a further charge made to register as a CIC. (£35)

CIC Regulator will then approve your CIC status within 15 days.

Annual returns are then also submitted to Companies House, with an additional form that lists what the company has been doing in respect to its community aims, what issues it’s had and a couple of other questions. Very similar to what we already do for the Charity Commission.

I raised a question about directors renumeration. Sara said that her team scrutinise the annual returns and if, for instance, your turnover was £100K and your directors renumeration was £75K, you would be requested to justify that to regulator.

Why are we interested in a CIC?

The benefit from our point of view here is that we, the trustees, want to appoint a manager/director of the company to run a coffee shop in our new extension and this manager will have full autonomy over the running of the business.

However we have paid for the extension and outfitted the coffee shop. The outfitting is costing us approximately £40K which we have obtained the funding for and ordered from the outfitters already. (This was grant money and had a deadline to be spent.)

The trustees are concerned that a director with full autonomy could pass resolutions, set their own pay/dividends however they chose, such that the charity would not benefit from the coffee shop and be left only being able to reclaim rent/utilities, etc.

A CIC would allow us to do this. Protecting any assets the CIC acquires whilst allowing a director to be appointed to run the business as they see fit. The manager/director would be able to benefit financially from their entrepreneurial skills and the charity would maintain a revenue stream from the CIC without the trustees needing to maintain a presence on the board of the coffee shop company.

The charity’s investment and revenue stream would still be protect should the new enterprise be sold/bought out by a rival. Should the business fail, all assets revert back the charity as well.

What are the alternatives

Setup a CLG/CLS Social Enterprise. Lease the equipment to the company and charge for rent on the space and a proportion of the utilities

What happens next

The trustees need to decide whether a CIC is the right type of company to set up. Start the proceedings to set up that company with Companies House and assign several members of the charity trustees as and interim board.

CIC Regulator have example Memorandum and Articles for CICs that should need a minimum of work doing on them.

Other things we need to start looking at

We need to start writing a business plan containing, amongst other things:

  • How long will it take to establish clientele base?
  • How long will it take to start covering our costs/make profit?
  • Where will money come from to bank roll up until that point?
  • How to attract clientele, unique selling point.
  • Risks: e.g. Competition opening a coffee shop in an adjacent unit?

If consider a bank loan to start the company initially (buy stock, pay wages etc.) talk banks that specialise in charities. Unity Trust etc..

Sunlight Social Enterprise, talk to them/look them up.

There is/are CICs that supply coffee, try and find them. Fair-trade?

Another local CIC ANLP based in Hemel Hempstead recently won some awards (Business Woman of the Year or something) and may be a interesting person to talk to about CICs

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