Social enterprises in the EU (IVOR nr. 111) 2018/2.6.3:2.6.3 The Community Interest Company (CIC) in the UK

Social enterprises in the EU (IVOR nr. 111) 2018/2.6.3

2.6.3 The Community Interest Company (CIC) in the UK

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The CIC is subject to the financial reporting and disclosure requirements imposed by the 2006 and the 2004 Acts.1 The financial reporting requirements of the CIC involve the directors in the annual preparation and submission of financial statements, accounts and annual reports. However, Section 34(1) of the 2004 Act introduces a special reporting obligation. According to this obligation, the directors of the CIC are obliged to prepare an annual CIC report that is submitted to the Companies House (Registrar) and should be forwarded to the Regulator.2 The obligation to prepare legitimately the CIC report is a duty that is imposed specifically on the directors of the CIC by legislation and pursuant to the AoA.3

The purpose of the CIC report is to provide evidence that the CIC pursues the agreed community objectives and continues to meet the CIC test in its affairs.4 The CIC report also aims to illustrate whether the company engages appropriately with all the stakeholders that are affected by its activities. In this respect, Cafaggi and Iamiceli note that the CIC report is an illustration of the CIC’s effort to serve the community.5

The CIC Regulations of 2005 provides for the minimum information that the CIC report must contain. The information includes:6

(i)

Information in the form of a description of the way the company’s activities have benefitted the community. The description must be primarily ‘fair’ in the sense that it provides fully the necessary information that describes the company’s activities and how these activities benefit the community. 7 The Regulator has commented that ‘CICs should aspire to provide the fullest possible information rather than simply comply with the minimum requirements’.8 The information must also be ‘accurate’.9 Considering that all the company’s affairs are subject to the Regulator’s monitoring, the accuracy of the information provided in the CIC report also falls within the scope of the Regulator’s investigation capacity.10 Although neither the 2004 Act nor the CIC Regulations of 2005 mention what the consequences of preparing inaccurate and/or false CIC reports are, a breach can trigger a ‘default condition’ and subsequently the exercise of the Regulator’s supervisory powers to initiate investigation proceedings into the CIC’s affairs.11 A default condition is specified in Section 41(3)(a)-(d) as a situation where:12 (a) there has been misconduct and/or mismanagement in the administration of the company;13 (b) there is a need to protect the company’s property or to secure the proper application of that property;14 (c) the company is not satisfying the CIC test;15 and (d) the company is not carrying out any activities to pursue the community interest objectives.16 Furthermore, Sections 41(2) and 45 of the 2004 Act determine the supervisory power of the Regulator to appoint directors of the CIC.17

(ii)

Information in the form of a description of the steps that the CIC has taken to consult stakeholders and the persons who are affected by the CIC’s activities (see Sub-section 2.5).18

(iii)

Information regarding the transfer of assets other than for full consideration, for example donations to other bodies (see Sub-section 2.6).19

(iv)

Information regarding the directors’ remuneration, their pensions and their compensation for loss of office.20 Regulation 34(3)(a) contains provisions which oblige directors to include information regarding their remuneration in the CIC report. CICs appoint directors who hold an office in the company and can be remunerated for their services, although it is unnecessary for a director to be a company’s employee.21

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