Monday, September 23, 2013

why I helped to kill a C.I.C.

I've never made a secret of my personal views about the Community Interest Company legal form that was designed by the government to better support and encourage social enterprises - but I've also always been clear that if there's a clear advantage that it can offer to an enterprise based on their specific circumstances, then I'm happy to throw my weight behind them in making sure that they gain this status.

Over the years I've been asked on numerous occasions by CIC's how they might 'un-become' a CIC after its become apparent that they've incorporated with this form on the basis of poor or mis-informed advice. All have then come to realise that the hassle and implications to undoing this form outweigh the cost of their carrying on with it. All, that is, until recently when I was invited to formally meet with the Directors of a CIC to help them decide if they should dissolve it, after they felt that this status was hindering more that helping them.

It transpired that winding up the CIC was the best thing they could do - because having this status was actually damaging their potential to achieve their social goals: 
- partner organisations (including some statutory agencies) just didn't 'get it' so they were wasting time regularly educating different people in the same organisations as to what it meant to be a CIC, 
- the investors they were targeting didn't want to get involved because of the statutory caps that would limit their return to below market rates, 
- through customer dialogue it had been identified that all the contracts that they were winning were on the basis of the quality of their service and had nothing to do with their legal status or identity as a social enterprise,
- and perhaps most dangerous of all, there was a culture emerging of 'just doing enough' rather than striving for excellence as owing to those statutory caps and the asset lock, staff didn't feel motivated to take risks or put in the extra effort that can make or break a growing enterprise as there was no mechanism that would allow their 'sweat equity' to be rewarded at at future date...

So - the papers have now been signed and the process of dissolution is formally in motion. By the end of the month there'll be one less CIC on the register.

But why share this story of apparent failure in the otherwise rosy world of social enterprise? Because sometimes things go wrong because we're offered bad advice and guidance and don't always know how to spot it; because legal forms can sometimes put the success of an enterprise at risk through no fault of its own; but mainly because sometimes we need to be told its OK to feel that what everyone else is raving about as being brilliant isn't working for you.


  1. Adrian,

    Interesting, and I'm not a big fan of CICs,but...

    Since when was a 20% dividend on the paid up value of a share below market rate - and what evidence do you have to support this assertion?

    Sweat equity - of course there is a mechanism - earn a surplus - pay some wages - and reinvest those wages in equity - too often sweat equity means failing business incapable of generating surpluses going nowhere fast

  2. thanks Jim - in this instance the cap was an issue because the CIC was set up badly (they'd not just had bad advice about their legal form, but also the way in which the shares were valued and structured - appears that their advisor brokered an incorporation agent who didn't understand the CIC structure); this didn't help the overall culture of the enterprise which is composed primarily of people with a strong private sector background and their accountant (who was also new to the CIC structure)...

    main lesson? make sure you adopt the right legal form, and take particular care if you're structuring yourself as a CIC with share capital (which are also by far the minority of all CICs according to the regulators' most recent report)

  3. Hi Adrian
    Once I was very much in favour of CICs, they seemed to me to be a way to achieve what I wanted in terms of social change, but also in generating an income for myself as a director.
    Over the last 12 months it has been the biggest struggle, I have to waste my time explaining what a CIC is, and even then they still don't understand and it has become a barrier to working with other charities and the public sector.
    At the moment I am looking to unincorporated but am now feeling like those who urged me to incorporate as a CIC have just abandoned me and I am left with a CIC that is doing nothing but taking up time and becoming a drain on resources.
    Could you advise on how I go about unincorporating? I am feeling pretty alone and have no idea what to do.

  4. hi Paul - sorry to hear about your poor experiences;

    a few links that might be of help with your next steps (although depending on how the CIC was set up, it may be easier to make it dormant for the foreseeable future rather than dissolve it...):

    the CIC Association -

    great webinar introducing the principle legal forms that social enterprises are adopting and how they compare/contrast/can be best used -

    and the guidance and forms from the CIC regulator on dissolving a CIC -

    feel free to drop me a note if you'd like to chat about this in a little more detail...