How to set up a CIC (limited by guarantee)
You know you want to become a Community Interest Company you’ve read all the government documents on it but you’re still confused. I don’t blame you it’s hard to get your head around it all. Here’s my simple guide to setting up as a CIC limited by guarantee.
What is a community interest company (CIC)?
A CIC is a special type of limited company which exists to benefit the community rather than private shareholders.
What will I need to set up a community interest company (CIC)?
To set up a CIC, you’ll need:
a ‘community interest statement’, explaining what your business plans to do and identifying a particular community of interest
an ‘asset lock’- a legal promise stating that the company’s assets will only be used for its social objectives, and setting limits to the money it can pay to shareholders (this is to reassure funders and investors more than anything). You will also need to identify an “asset locked body” which is any organisation (ideally a charity or CIC) who will recieve any assets in the vet you shut down your CIC.
a constitution (including both a Memorandum of Association and a Memorandum of Articles) - you can use the CIC regulator’s model constitutions (see below for more details about this)
to get your company approved by the community interest company regulator - your application will automatically be sent to them
The CIC regulator has guidance on setting up a CIC here.
How do I set up a CIC?
You can set up your CIC online with Companies House. It costs £27. You’ll need to create a Government Gateway user ID and password for your company. (You cannot use your personal Government Gateway ID).
Or you can do it by post. Use the forms from the CIC regulator to register a CIC by post. It's £35 this way.
(All the above information is available here: https://www.gov.uk/set-up-a-social-enterprise )
What is a Memorandum of Articles and Memorandum of Association? And what needs to go in them for a CIC?
You need both a Memorandum of Association (this simply lists the members) and a Memorandum of Articles (which is all the "rules" of how you will do business).
You can find templates for these here.
The Memorandum of Association is a standard document used by all businesses and you simply need to add the name of your CIC, the names of your “members/subscribers” (these are legal terms for the individuals who are setting up your CIC), their signatures and a date.
The Memorandum of Articles is a more complicated document detailing the rules of how you do business, however many new CIC’s simply adopt the standard templates from the regulator and adapt them later when they need to.
There are two options (and template documents) to be a CIC limited by guarantee - one with a "small" membership or a "large" membership.
Notably this isn't to do with the number of "members" but whether or not you want all you members to be directors. For example if you plan to just have two/three Members of the company who are also all Directors then this is a small membership. If however you plan to have members who aren't Directors e.g. different Directors get voted in from the membership every so often then this is a large membership.
If you want to have a small membership use this CIC model constitution: company limited by guarantee with a small membership - articles of association
If you want to have a large membership use this CIC model constitution: company limited by guarantee with a large membership - articles of association
The bits in red in these template documents cannot change as these are the essential parts which make it a CIC, everything else you can adapt to how you plan to run the business. Although usually organisations keep the template the same unless there's specific things they want to adapt.
Have a good read through and let me know if you need anything explaining.
Within this you'll need to include who the "asset locked body" is - this is the organisation(s) that you choose to receive any remaining assets should you wish to close your business down, they are usually a business aligned to your community interest/impact area/values.
Here's more information about the CIC and key aspects of them here.
If you enjoyed this blog...…
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Alternatively, if you’re looking to secure income from corporates you may find my Sell to Corporates for Social Entrepreneurs course useful, in understanding the best way.