“Social Enterprise” is not a legal form or status, rather it is the ethos by which an entity operates. This has been generalised in the misnomer “not for profit” but, of course, any business needs to make a profit, or surplus, to survive. It would be more accurate to define a social enterprise as a business where:

• its primary objective is linked to a social, community, health and wellbeing or environmental purpose or benefit;
• the majority of its profits/surplus are reinvested into the business rather than distributed to its members / shareholders; and
• its assets are “locked” so that they are not distributed to its members but are instead transferred to other similar social enterprises if the entity ceases to carry on its business. 

Community Interest Companies (or CICs) were developed to provide a half-way house between private trading companies and charities, so that they could attract investment to carry out social or community-based objectives whilst being more lightly regulated than charities. For that reason, a CIC cannot also be charity.

CICs have since proved to be a very popular choice of entity, particularly for the providers of health and social care, as they combine the benefits of limited liability and a good governance structure under the Companies Act with the ethos and attraction of being a social enterprise. They also have the added benefit that commissioners of services often feel more comfortable contracting with CICs as they know it is a social enterprise with a community focus, the asset lock and the dividend cap.  

The CIC Regulator is a “light touch” regulator focussing on eligibility requirements and the registration process. However, the CIC Regulator also issues guidance and has limited powers of investigation and enforcement. Applications for registration of a company as a CIC are made to the Registrar of Companies in the usual way, but before the company can be incorporated (or converted) the application will be referred to the CIC Regulator’s Office (within Companies House) to consider whether the company is eligible for CIC status. Once the CIC Regulator’s approval is given the Registrar of Companies then proceeds with the incorporation or conversion process as normal.

A CIC must be formed as either a CLS, CLG or a PLC, and all of the requirements relating to those entities (principally compliance with the Companies Act) apply. However, there are three additional elements that must be included in the Articles for a CLS, CLG or PLC to become a CIC:

1. Community Interest Test:  The objects or purposes of the CIC have to be in the community or wider public interest and the benefits it provides must not be confined to an unduly restricted group.

A “community” for CIC purposes can embrace either the population as a whole or a definable sector or group of people - any group of individuals may constitute a community if they share a common characteristic which distinguishes them from other members of the community, but it is expected that the community will usually be wider than just the members of the CIC.

In most cases the community should be easy to define (the residents of Swansea, people with learning difficulties, older people, etc). In other cases, the purpose of the CIC will in itself suggest a benefit to the whole community (research into cancer, provision of advice services, encouragement of health and wellbeing, support of community projects, etc)

However, a company will not be eligible if any of its activities benefit only the members of a particular body or the employees of a particular employer, without bringing any benefits (directly or indirectly) to a wider community.

2. Asset Lock: the assets of a CIC must be retained within the CIC to be used for the community purposes for which it is formed. They are subject to an ‘asset lock’ which ensures that assets are retained within the company to support its activities or otherwise used to benefit the community. The main elements of the asset lock are as follows:

• CICs may not transfer assets at less than full market value unless the transfer falls within a narrow range of permitted transfers such as to another asset-locked body or for the benefit of the community.
• On dissolution of a CIC any surplus assets must be transferred to another asset locked body once all liabilities have been met 

3.  Dividend Cap: a limit on the total dividend that can be declared each year (currently, the limit is 35% of the distributable profits of the CIC for the relevant year).

The process for incorporating a CIC is the same as for a company limited by shares or guarantee.  An application form, the Articles and payment of the incorporation fee is sent to Companies House in Cardiff in the normal way but, for a CIC, the application is then diverted to the CIC Regulators office (within Companies House) to verify that the three requirements above have been satisfied and are included within the Articles. If they are, the application is then passed back to the Registrar of Companies for registration in the normal way.

Template Articles for a CIC CLG can be found here 

It is envisaged that, for a Health Board to sign off the Articles and to support the development of the Cluster, the Articles would need to substantially reflect the form of these template Articles.