Community Interest Companies: Funding for growth
Community interest companies, or CICs as they are often known, are the untold success story of company regulation and social enterprise over the past 12 years. Anne Vincent explains why accountants should take note of the fastest growing legal form of social enterprise in the UK.
The CIC model allows companies the opportunity to compete commercially whilst demonstrating their commitment to social change through the asset locks and regulatory oversight.
Even though they were only launched in 2005, the numbers of CICs achieved the 10,000 mark at the end of 2014 and have been on an upward trajectory ever since, with a landmark 14,000 CICs now registered with Companies House this January.
Not surprisingly, those CICs that secure investment and operate successfully have a good business plan and form part of this exceptional growth. They demonstrate corporate governance; understand their market and are able to measure their social impact. Being a CIC does not guarantee business success, but the combination of a strong business approach underpinned with a social purpose is powerful and persuasive.
Findings from the last four years suggest that CICs had the edge over other company structures when seeking public sector funding: particularly in the case of grant funding and in accessing government contracts.
Social investment provides scope for CICs to grow even more. Social investment is repayable finance that seeks to help CICs raise funds to develop their business - and for investors to make a financial and social return. It is a key driver to help CICs reach the next level of growth and scale and, importantly, to positively impact on their communities.
A solid number of CICs are already receiving social investment and this market has grown significantly. As of 2016, there was over £420m in social investment per year, with a total of over £1.5bn invested, through over 3,000 organisations, with over 70% of that investment channelled to social enterprises with asset locks, including CICs.
Regulatory reforms have opened the door to equity investment – the change to dividend caps, for CICs limited by shares, in 2014 was made to facilitate more equity investment into CICs, clarifying that up to 35% of profits could be distributed.
The rise of Social Investment Tax Relief (SITR) is empowering CICs and is a strong prospect for driving growth through investment in CICs.
SITR was launched in 2014 as a venture capital tax relief for social enterprises and provides a 30% tax relief for individuals who invest risk capital. Helpfully, CICs were recognised as one of the three ‘regulated social sector organisations’ that alone were eligible for this new investor tax relief.
SITR has made some strong early steps, raising over £3.4m from over 30 organisations and around 180 investors in the first two years of operation to 2016.
Encouragingly, CICs appear to represent approximately a quarter of the SITR deals by number and volume of investment. This is an encouraging development, and the recent rise in the investment limit by the Treasury to £1.5m for organisations under 7 years old provides a real opportunity for new CICs to grow and grow fast.
The recent boosting of SITR may indeed be a game changer for CICs and relatively young, growing CICs should consider how they can capitalise on the recent investment rise. Social investment does seem to be a promising driver for the growth for CICs, with the realistic potential of investors and CICs working together to take CICs to the next level.
Funding opportunities are enabling CICs to grow and compete successfully against private limited companies, whilst demonstrating commitment to community benefit through their regulatory provisions.
CIC growth and business success has been continued and sustained for the last 13 years and we are confident CICs will continue to be the social enterprise of choice for businesses who want to succeed, be profitable and realise social change.
Read previous articles on Community Interest Companies here.