CICs are diverse. They include social and community enterprises, social firms,
mutual organizations such as
co-operatives, and large-scale organizations operating locally, regionally, nationally, or internationally. In order for a company to be registered as a CIC, the Regulator must be satisfied that "a reasonable person might consider that its activities are being carried on for the benefit of the community", or at least a section of the community. This community interest test is met primarily by including a suitable objects clause in the articles of association. In order to meet this test, CICs cannot: • be primarily focused on political activity • be set up to serve an unduly restrictive group • be a political party, a political campaigning organisation or a subsidiary of a political party • be a charity • carry out unlawful activities. The articles of a CIC must also provide that its assets cannot be used except for the benefit of the community. This is known as the 'asset lock'.
The asset lock The "asset lock" refers to provisions in the company's articles that ensure the assets of the company are, at least mainly, applied for the benefit of the community. The precise terms are specified in legislation. Assets not applied directly for the benefit of the community may only be exchanged for full value or transferred to another "asset-locked body". The only exceptions are distributions to the company's members for the purpose of returning paid-up capital, or paying dividends and interest (which are subject to caps).
Comparison with charities A CIC is
ipso facto not a charity, even if in all other respects it meets the requirements of charitable status. They are more lightly regulated than charities, which can be advantageous. On the other hand they do not have the benefit of charitable status, such as a favourable tax treatment: CICs are liable to
corporation tax like any other company. Those who may want to set up a CIC are expected to be
philanthropic entrepreneurs who want to do good in a form other than charity. This may be because: • CICs are identified explicitly with social enterprise. Some organizations may feel that this is more suitable than charitable status. • Members of the board of a charity may only be paid where the constitution contains such a power, and it can be considered to be in the best interests of the charity. It means that, in general, the founder of a social enterprise who wishes to be paid cannot be on the board and must give up strategic control of the organization to a volunteer board, which is often unacceptable. This limitation does not apply to CICs. • They are looking to work for community benefit with the relative freedom of the non-charitable company form to identify and adapt to circumstances, but with a clear assurance of
not-for-profit distribution status. • The definition of community interest that applies to CICs is wider than the public interest test for charity. A charity can convert to a CIC with the consent of the
Charity Commission. In so doing, it will lose its charitable status, including tax advantages. A charity may
own a CIC as a subsidiary, in which case (exceptionally) there are no restrictions on distributions to the shareholder. ==Formation and registration==