So you have decided to do something good, selfless and for the benefit of others. That's great... until you realise that you have to deal with the paper work.
This is when you may be asking about how to organise and form your Social Enterprise.
What are the options?
The main options are to go for a fully fledged Registered Charity; keep it small and informal by working as a Members Association or form a Limited Company.
But thanks to some new legislation, you can now form a Community Interest Company ("CIC") instead of the above options.
How is a Community Interest Company different?
A CIC is different on two key areas. I have provided some detail on each area below.
Legal identity and ownership
By establishing a CIC, you will be able to create a new and separate legal person from the founders.
This will allow the Social Enterprise to enter into contracts directly and not depend on individuals entering contracts or holding assets; just like a Limited Company. This also means the founders or trustees do not become personally liable for any losses.
However, unlike a normal Limited Company. A CIC has an Asset Lock which prevents any assets held by the CIC being distributed to its shareholders should the CIC become insolvent. It also sets limits on the level of dividends that can be paid to shareholders.
This fits in well with Social Enterprises that want to offer their investors a return, but also ensure the profits are reinvested into the community.
Unlike a Charity, a CIC is taxed just like any other Limited Company on any profit or surplus it generates. However, there are grounds to reduce the tax paid by the CIC depending on its operating model.
A CIC could lose out on the favourable tax treatment given to donations to Registered Charities like Gift Aid.
Keeping in mind the limitations mentioned above, a CIC may still be beneficial for Social Enterprises who do not want to be held back by the stringent rules set by the Charity Commission; this can become particularly limiting where Social Enterprises are looking to generate surpluses to reinvest into their operations.
How can we help?
We can talk you through the main options for your social enterprise. If you would like to go ahead and setup a CIC, we can help you register your CIC and complete your compliance work such as filing accounts and tax returns.
We also offer discounted rates for Social Enterprises and Community Organisations as a part of our commitment to our local community.
Some useful links:
About the author
Kabir Ali CTA ATT is the founding Director at KBR Accountancy.