Every community interest company (CIC) has a compulsory asset lock written into its articles. It means the CIC's assets, including its profits, can be used only for the community it was set up to serve and never for private gain. Unlike a voluntary asset lock in an ordinary company, nobody can remove it, whether by members' resolution or otherwise.
When you can transfer assets
The lock does not stop a CIC buying, selling or spending. It controls where assets can go. Assets cannot pass to directors, members or shareholders, and any transfer out of the CIC must fit one of four routes.
An asset-locked body is a registered CIC, a charity (including a charitable incorporated organisation), a permitted registered society or an equivalent body established outside the UK. A CIC cannot name itself or an individual in its articles.
To move assets for less than full value to an asset-locked body that your articles do not name, ask the CIC Regulator for consent on form CIC53. Name the bodies you expect to support in your articles from the start: changing the nomination later needs a special resolution filed with Companies House.
Any transfer for less than full value, including ones the Regulator consented to, must be reported in the CIC's annual community interest report (form CIC34).
How the dividend and interest caps work
A CIC limited by guarantee has no shares and pays no dividends. A CIC limited by shares can pay them only if its articles allow it and its members approve the dividend by resolution. The articles you adopt set who can be paid.
For example, a CIC with £100,000 of distributable profits can pay up to £35,000 to private shareholders and must keep or use the rest for the community.
A CIC cannot get round the cap by buying back or redeeming its shares, or by reducing its capital, for more than the paid-up value of the shares.
Interest is capped only where its rate depends on the CIC's performance, which is rare. Ordinary interest on loans is not capped.
Paying directors
A CIC can pay its directors, but pay above what is reasonable for the work can breach the asset lock, because it moves value out of the CIC. Arrangements should be open as well as reasonable, and the annual CIC report must disclose them.
What happens when a CIC closes
If the CIC is wound up under the Insolvency Act 1986, the liquidator pays its debts first. The Regulator then directs where what is left goes.
If the CIC applies to be struck off instead, it can pass its remaining assets to a named asset-locked body once its debts are paid, without the Regulator's consent. To pass them to an asset-locked body the articles do not name, it needs the Regulator's consent on form CIC53.
If the lock is breached
The CIC Regulator takes a light-touch approach and does not supervise individual CICs actively, but it investigates complaints and can act. It can appoint or remove directors, appoint a manager, vest the CIC's property in the Official Property Holder, transfer shares and petition the court to wind the CIC up.
Legal basis
Primary legislation and key regulations