A social enterprise is a business in any sector that exists to help people or communities. There are over 100,000 in the UK and they've generated around £60 billion in profits.

Like any other kind of business, a social enterprise can be organised in different ways. Just because your business has a social conscience doesn't mean it can't be a limited company, sole trader or partnership.

And like any other business, social enterprises intend to make a profit. But their structure, recruitment and spending tend to be geared towards transforming lives and communities.

For example, a social enterprise might aim to employ people who are homeless or have had a history of homelessness. It might focus on providing opportunities to ethnic minorities. It might exist to make a difference to food and fuel poverty.

A social enterprise could be a creative agency, a recycling project, a cafe or a waste management company – to name just a few. They range in size from tiny teams to multi-million-pound organisations.

There are a few criteria that a business has to meet to qualify as a social enterprise. These are:

1. The business must have a clear social or environmental mission
2. It must be independent and earn the majority of its income through trading
3. It must re-invest or donate the majority of its profits
4. It must be transparent about its operations

If you're looking at setting up a social enterprise, one route to go down is becoming a CIC or community interest company.

What is a CIC?

CICs were created in 2005. Since then, over 26,000 have sprouted up. They're all non-charitable social enterprises. They seek to make a profit and a difference.

The structure of a CIC is pretty normal-looking. It can be a company limited by guarantee (CLG) or a company limited by shares (CLS).

However, there are two big differences. One is that the CIC has to pass a "community interest test". A CIC's business plan has to benefit the community, not shareholders.

The second is the so-called "asset lock". There are only very limited circumstances in which profits can be shared among members or shareholders. All assets are ring-fenced to serve the community – and should the company fold, its assets will go to another asset-locked organisation.

It's important to note that an asset lock is legally binding.

How is a CIC not a charity?

Charities can trade – just think of Oxfam shops – but they don't pay board members. With CICs, the founders can sit as paid directors.

A CIC is a kind of halfway point between a charity and a full-on enterprise. It allows for board members to receive a salary while locking assets and protecting its humanitarian mission.

Because of this protected social purpose, CICs can apply for grants that were historically restricted to charities. On the other hand, they don't enjoy the tax benefits that charities do – they're not exempt from taxes like stamp duty and aren't able to register for gift aid.

How can a CIC be financed?

Individuals and companies can invest in CICs and they can be financed by loans and bonds. A CLS can issue shares – but any capital gains on buyback go to the CIC, not to shareholders.

If the CIC is a CLS, there's an upper limit to the amount of profit that can be distributed as dividends.

Like the asset lock, these restrictions exist to guarantee as far as possible that profits go towards the CIC's social purpose. This mission isn't protected in a normal company.

CICs benefit from "limited liability", meaning that their directors don't have to underwrite the company's assets. It shares this attribute with both for-profit and not-for-profit companies.

How are CICs regulated?

CICs are regulated by the Office of the Regulator of Community Interest Companies. It publicly announces its "light touch" and "minimum of interference" with the running of CICs.

Its job is to review applications, confirm them with Companies House, provide guidance and promote CICs as a viable form of social enterprise. It's also responsible for investigating any complaints.

Just like any other company, a CIC has to file its accounts each year with Companies House – but they also have to submit a community interest report.

How do I set up a CIC?

To set up a CIC, you need to do a few things.

First, you'll need a "community interest statement". This sets out your business plan, focusing on how it will benefit individuals or communities. You also need to commit to the "asset lock".

Second, you'll need a constitution. This can be based on the regulator's template which is available online.

Your application has to be approved by the regulator. This happens automatically once your application is submitted.

You can set your CIC up either online or by post. It costs £27.

Where can I learn more about CICs?

The Office of the Regulator of Community Interest Companies has several resources available including guidance on how to set yourself up as a CIC.

Other information is available through:

• The CIC Association
• Keeping it Legal – A Guide to Legal Forms for Social Enterprises
• Social Enterprise Coalition
• Social Enterprise UK
• UnLtd
• Business Link
• Social Enterprise Magazine

Setting up a business is a big deal – whether it's for-profit, not-for-profit or a CIC. Seeking legal advice can be advisable to ensure that you know exactly what you're getting yourself in for – and have an experienced professional on hand to help you dot the i's and cross the t's.

Whatever you decide, we wish you luck with your new venture!

At Milners Law, we have a close-knit team of knowledgeable, no-nonsense, experienced corporate lawyers. If you are looking for legal support relating to a CIC or any other type of company, please don't hesitate to contact us for a free, no-obligation consultation.