What next for Community Interest Companies?

Posted: 30 May 2022, in Blog

Community Interest Companies (CICs) continue to be a social enterprise success story. 

There’s a huge diversity of enterprises that operate as CICs in every part of urban and rural Scotland. CICs tackle a wide range of social and environmental issues and operate in most parts of the economy.

Animalia CIC organise sport and fitness in local communities and designs and makes high quality sportswear known as Animalia Apparel. There’s Clean Water Wave CIC working with advanced technology to transform polluted water into clean water and there’s Circle Scotland CIC, a hub for charities, social enterprises and socially aware businesses, offering support and consultancy under one roof.

These are just a few of the many CICs that are working across Scotland and the UK to transform lives and drive local economies. 

For those not familiar with this type of business, a CIC is a special type of limited company that exists to benefit the community rather than private shareholders. They have additional features that certify their social mission, lock in assets, and limit dividend payments to members. Most CICs in Scotland don’t hold share capital.

Much of the growth from 2017-19 within Scotland’s social enterprise community has been through the growth of Community Interest Companies. The number of CICs registered and trading grew from 409 to 884 in just four years up to 2019, according to the Social Enterprise Census 2019. We expect that number to have grown significantly when the new Census is released in the next couple of months. 

Certainly much of the growth in Social Enterprise Scotland membership throughout the pandemic has been by CICs, a period that saw innovation, creativity and new, local organisations springing up. Isle Develop CIC is one example. It began with isle20.com, a business directory for small businesses in the Scottish islands. Then it became an online marketplace supporting small businesses to get online and sell in the absence of tourists. 

Malcolm Harris of Social Enterprise Accountancy Scotland CIC says that the CIC model could now achieve much more: 

“As a CIC that exists to make social enterprises successful we believe the CIC model is a huge force for good in our society – but also that there is much untapped potential for it to do more. To tap into this potential we need awareness and trust in the model across funders, public bodies and society at large. Talking through the challenges and opportunities with other CICs and people who are on the same page is not only refreshing but has been crucial for us to feel part of team social enterprise.”

However, there are a number of barriers facing CICs across Scotland and the UK that is potentially stifling their development, including a general public awareness and understanding issue.

Some CICs have faced funding barriers regarding charity and third sector funders, who don’t always fully recognise the business model and the benefit of CICs to our local communities.

There’s also a lack of awareness issue with regards to some mainstream banks and local authorities, as well as some business advisors without a specialist expertise, who are unable to fully appreciate the CIC business model. 

This is posing challenges for CICs who have to explain their business model and seek to build trust, something that other businesses don’t face in the same way, and they don’t always qualify for the same support afforded to, for example, registered charities.

Jim Withers of Respite Now CIC says:

“Our Google account is in limbo and we’ve been trying for around four or five years to have a definitive answer why they decided to stop recognising UK CICs, even though CICs are on the increase and are a major part of the social enterprise community. 

“We have the strange situation where a charity who has a CIC subsidiary can circumnavigate the Google ruling but a long standing CIC who has adhered to their procedures are excluded unless they change their constitution. 

“We cannot afford to market our website commercially and the Google Grants were very effective driving traffic via campaigns but this stopped overnight, putting pressure on our services.”

Introduced by the UK Government in 2005 under the Companies (Audit, Investigations and Community Enterprise) Act 2004, CICs were designed as a social enterprise model, as businesses that want to use their profits and assets for the public good.

CICs are intended to be easy to establish, with all the flexibility and certainty of the company form, but with special features to ensure they are working for the benefit of the community. 

The UK Office of the Regulator of Community Interest Companies (CIC Regulator) decides whether an organisation is eligible to become, or continue to be, a Community Interest Company. It’s responsible for investigating complaints (and taking action if necessary) and provides guidance and assistance to help people set up CICs.

According to the Regulator, to set up a CIC, you’ll need a ‘community interest statement’, explaining what your business plans to do, an ‘asset lock’ (a legal promise stating that the company’s assets will only be used for its social objectives), setting limits to the money it can pay to shareholders, a constitution (you can use the CIC regulator’s model constitutions) and to then get your company approved by the Regulator.

Alex Stobart of Mydex Data Services CIC says: 

“It’s welcome news that Community Interest Companies, as a part of the social enterprise and wellbeing economy, are growing in number across Scotland. CICs offer a range of services that tackle inequalities, promote wellbeing and deliver inclusive person centred services to citizens, carers and communities and they work with other organisations in the public, third and private sectors.

“In order for them to do more, there’s a place for the social investment community and the Scottish National Investment Bank to look at their missions and start to build their long term patient capital and equity investment in social enterprises and the Third Sector in Scotland. Social Investment Scotland and the Catalyst Fund have been welcomed for their roles by the recent Adebowale Commission, and there is a good base to support CICs further.”

With the continued rapid growth in Community Interest Companies we have a real opportunity to reassure potential funders, investors and supporters and demystify the CIC model. 

CICs and other social enterprises have a central role to play in driving a new, wellbeing economy and building community wealth but can only succeed with the right business and financial support.

We certainly believe that CICs will play a continuing and increasingly important role within our social enterprise community over the coming months and years.

Duncan Thorp, Policy and Public Affairs Manager, Social Enterprise Scotland