This article explores why a federation or provider company may want to incorporate as a CIC, or convert to being one. It briefly outlines the main legal restrictions to be aware of when operating as a CIC.
A Community Interest Company or ‘CIC’ is a type of company that is primarily designed for social enterprises that are being carried out for the benefit of a community. Whilst CICs may generate a profit, the purpose of a CIC is one of community benefit, rather than to maximise a profit for shareholders. CICs are primarily, therefore, not-for profit entities.
Some basic features of a CIC are that:
A company limited by guarantee is not eligible to hold GMS contracts or PMS agreements, and is therefore a less common structure adopted in primary care. This also impacts its ability to offer the ‘classic’ NHS pension scheme to any staff it employs, meaning that if this is desired, either an application for Independent Provider or a Direction/Determination would be needed.
CICs must satisfy the ‘community interest test’ at formation/conversion and continue to do so for as long as they remain a CIC (i.e. a reasonable person might consider that its activities are being carried on for the benefit of the community).
Not all of the activities carried out by a CIC need to have a direct benefit to the community to which it serves but everything a CIC does should somehow benefit the community it is built to serve.
The CIC Regulator decides whether a company is eligible to be a CIC and they must approve the registration of a CIC.
The main features that distinguish a CIC from other private companies are:
The purpose of this is to ensure that such payments of dividends or interest are not used as a means to circumvent the asset lock.
In addition to the company accounts (which all limited companies must file with Companies House), CICs must prepare an annual community interest company report. This must show that the CIC continues to satisfy the community interest test that it passed on formation or conversion, and that its activities continue to benefit the community. CICs are to that extent more heavily regulated than limited companies.
Dividends can be an important or useful income stream for shareholder practices within a GP federation. The checks and balances required around the use of the profits and the asset lock introduce a degree of inflexibility which may not be appropriate, depending on how the arrangement is to be structured. Secondly, due to the asset lock, on winding up of the CIC any surplus assets (less any allowable returns to shareholders) must be transferred to ensure they are retained for community interest or charitable purposes.
Before adopting a CIC structure, it is important that federations and their members are clear on the aims and goals of the federation and consider these against other possible legal structures.
Our specialist healthcare and not-for-profit teams can help with either the formation of a CIC or advise you if you are looking at converting an existing GP company into a CIC.
VWV is a full service law firm and can continue to work in partnership with your GP federation or provider company, offering support across a full range of practice areas as your company continues to grow and the NHS landscape evolves.