CIC or charity? Discuss

Keep an eye on the detail, say lawyers including Gerry Morrison of Rollits, if you want to be a community interest company

Gerry Morrison
Gerry Morrison

The legal structure of community interest companies is still relatively new at just under 10 years old. There is no clear-cut definition of organisations for which CIC status is appropriate; many of those on the register of CICs are ones that could conceivably have been charities instead.

Gerry Morrison, a partner at the law firm Rollits, says that the question of whether to go for charity or CIC status is particularly tricky for community amateur sports clubs, youth theatre and other performance arts companies, community transport schemes and any organisation calling itself a social enterprise.

"Often people come to us and say we want to be a CIC, and then when they talk about what they want to achieve, full charity status is actually more appropriate to them," she says. On the other hand, CIC status "can be a hard sell to some clients" who had not previously considered it. "They think: why do you want that, because then you've got the asset lock, but nothing of the tax breaks," she says. Whichever structure a new registrant proposes - charity, CIC or other - Morrison says she would always examine whether it is the right one.

James Sinclair Taylor, a partner at the law firm Russell-Cooke, says there are some CICs that should really be charities, but have ended up as CICs because their founders failed to make their case for charitable status properly. "Social entrepreneurs and charity founders working on new solutions to old problems, or solutions to problems that have only just emerged, often find themselves at the boundaries of charity law," he says.

"There are a lot of people having great ideas about how to change the world and failing to get charity status because charity law speaks in quite rigid boxes. But they are thinking more holistically, so they go off and create community interest companies instead, and they don't get any of the tax advantages." Ensuring that start-ups do get the charity status they deserve, he says, "is partly about learning to talk the Charity Commission's language".

But CIC status is not, and does not deserve to be, merely the last refuge of the failed charity. "The reason for an organisation ending up with the CIC structure is often a positive decision, taken not just because it has experienced problems with charity registration," says Stephanie Biden, a partner at the law firm Bates Wells Braithwaite.

"Often founders choose to establish a CIC because it gives them the freedom to be paid as an employee of their social venture, without having to surrender control to a voluntary board of trustees, or because they want to attract forms of investment not available to a charity," she says.

Adam Wadsley, a corporate legal adviser at Jordan Corporate Law, says: "I think the issue of funders, banks, investors of any type may be more prevalent." He suggests that in the future investors might choose to work only with organisations registered in a particular structure, be it CIC or otherwise, forcing the hand of founders if they want to access a particular type of funding.

He says that one of the big draws of CIC status is simplicity. "When you're dealing with a smaller area, a community, that is often attractive," he says. "CICs tend not to work nationally."

That local, low-profile nature of CICs may be working to their disadvantage. There are currently 20 times as many charities as CICs across the UK, meaning that wider recognition of what they are and can do is still some way off.

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