Commentary on Sections Summary and background
189.Part 2 of the Act establishes a new type of company, the community interest company, for use by social enterprises wishing to operate as companies.  This Part  also establishes the Regulator of Community Interest Companies ("the Regulator"), whose role will be to maintain public confidence in the CIC model.
190.The CIC is intended to be used primarily by non-profit-distributing enterprises providing benefit to a community.  Such businesses are presently active in areas such as childcare, social housing, leisure and community transport.  Many of them already incorporate as companies, either as a company limited by guarantee ("CLG") or a company limited by shares ("CLS"). The special characteristics of the CIC are intended to make it a particularly suitable vehicle for some types of social enterprise – essentially, those that wish to work for community benefit within the relative freedom of the non-charitable company form, but with an assurance of non-profit-distribution status.
191.Companies that are formed as, or become, CICs will continue to be subject to the general framework of company law.  In particular, CICs and directors of CICs will have to comply with their obligations and duties under the Companies Acts and the common law, as modified by this Act.  The CIC will be a new variant of existing forms of company.  It can take the form of a CLG or CLS, and existing companies limited by guarantee with a share capital will also be able to become a CIC.  CICs will be registered as companies with the registrar of companies in the usual way, and will be subject to the usual regulatory constraints and powers associated with company status, including the oversight of the Department of Trade and Industry’s Companies Investigation Branch.
192.The distinguishing features of the CIC will be:
	in order to become a CIC, a company will have to satisfy a community interest test, confirming that it will pursue purposes beneficial to the community and will not serve an unduly restricted group of beneficiaries. The test is whether a reasonable person might consider the CIC’s activities to benefit the community – it is therefore wider and simpler than the charitable test of public benefit;companies of a particular description may be excluded from CIC status by regulations; it is anticipated that political parties, companies controlled by political parties, and political campaigning organisations will be excluded in this way;CICs will not be able to have charitable status, even if their objects are entirely charitable. However, charities (and all other organisations except political parties) will be able to establish CICs as subsidiaries;each CIC will be required to produce an annual community interest company report containing key information relevant to CIC status. The report will be placed on the public register of companies;CICs will have an asset lock - that is, they will ordinarily be prohibited from distributing any profits they make to their members;however, it is intended that regulations will allow CICs that are limited by shares to issue dividend-paying "investor shares". The dividend payable on such shares will be subject to a cap;when a CIC is wound up, its residual assets will not be distributed to its members. Instead, they will pass to another suitable organisation that has restrictions on the distribution of its profits, for example another CIC or a charity;the Regulator will approve applications for CIC status, receive copies of the community interest company reports and police the requirements of CIC status, including compliance with the asset lock. He will have close links with the registrar of companies. The key role of the Regulator will be to maintain public confidence in the CIC model. He will aim to impose the minimum necessary regulatory burden on CICs, but will have powers to investigate abuses of CIC status and to take action where necessary, for instance to remove directors, freeze assets or apply to the courts for a CIC to be wound up. He will also set the cap on CIC dividends.
193.Sections 26 to 29 introduce the concept of the CIC and establish the Regulator, Appeal Officer and Official Property Holder.  Sections 30 to 35 set out special requirements which CICs must satisfy.  The processes for becoming a CIC are set out in sections 36 to 40. Sections 41 to 51 set out the supervisory powers of the Regulator.  The conditions under which it is possible to cease being a CIC are set out in sections 52 to 56.  Supplementary sections 57 to 63 provide for various aspects of CIC operation and regulation, including fees and information gateways for the Regulator.
194.A number of sections in Part 2 provide for certain details of the regulatory regime for CICs to be set out in regulations made by the Secretary of State.  A draft of these regulations was published for consultation on 11 October 2004.  The regulations will be subject to affirmative resolution.