Faircap was legally registered as a Community Interest Company in the UK in 2016. The British community interest company legal form is unique in the world. It’s not a regular company nor it’s a regular charity or non profit. It is a mix of both, combining the benefits of both legal forms. It was created by the UK government specifically to promote social entrepreneurship back in 2005.
We would like to share our own experience trying to find a legal framework, since that could be useful for other collaborative and open projects. When we started developing Faircap, we wanted the project to be open and inclusive for anyone in the world to participate and collaborate with their own resources (time, skills, contacts, tools, funds) to make it a reality. We did not consider yet any legal framework since we were not looking to protect any intellectual property and just wanted to share the results and make the filters work. Most of the times registering a legal entity can be a roadblock for many collaborative projects. In Europe a common way to develop an open project would be as a non profit association of the members of the project. Another way could be registering a small company.
At Faircap we faced some constraints. The people who had already contributed to the project or could help in the future were based in different countries. Registering a legal entity in some countries requires all members of the association to sign the papers physically or thru a power of attorney. Then, in some countries it can take weeks, even months to register it, it is long cumbersome process. Also, because the end result from this effort would be a final product, normally charities or associations are not created to develop, distribute or market a product. It would be hard to explain to larger entities, both for profit and non profit, that as a charity we were making products and selling them to finance the operations. Finally, because in open projects normally there is a core team that proposes actions and executes them and many other contributors might come and go, helping from time to time, then if you set up a project as a non profit association the decision making process can become very slow and complicated.
Some of the benefits of developing a project such as Faircap thru an CIC are that a CIC is:
- Very simple to set up – Filling up the forms is very easy, language is not a barrier if you can speak and understand a bit of English, which can be harder in other countries. A big advantage is that all of this can be done online if you hire an inexpensive registration service.
- Inexpensive to register – Setting up a CIC can cost from 100 British Pounds to around 300 pounds (If you need an address and registered office, VAT, etc).
- Fast to be up and running – Registering a CIC takes about one to two months, but you can be up and running in a few days because you first register a limited company in a couple of days and the rest of the time is used to convert a regular limited company that you registered first into a CIC by the CIC regulator.
- There are no limits on residency or citizenship – This is a very important point if your project has contributors from all over the world.
- The maintenance is simple – There are a couple of actions and a couple of dates that you need to keep in mind to maintain the CIC registered such as sending the company accounts to the UK authorities once a year, but this can be done by yourself. In other countries maintaining a legal entity is complicated, costly and must be done every month. In Spain for instance apart from paying 120 Euros per month to an accountant you must pay about 300 euros every month for social security even if the entity does not yet have any income.
- The decision making can be adjusted to your own model – Normally in an association every single member has to vote on the different decisions, this could be slow and complicated for members who are abroad. In the case of the CIC, you can set up your own system for operating, for example with director, group of directors, board of advisors, or team members to organize the day to day operations as needed.
- It ensures the collective efforts are focused on the mission you want to accomplish – There are no conflicts of interest among members in case the project starts growing. Because the assets from a CIC belong to the social mission and not to the members or shareholders, this ensures that a CIC can’t be sold to a bigger company for instance, extracting value from the collective effort of others for the benefit of a few.
- It allows for social and impact investors to be part of the CIC – if you need capital to grow, you can incorporate impact investors into the CIC, but their earnings are limited to a certain percentage or return.
- Directors can run a CIC and get paid for their work as salaries – normally in different countries associations can’t pay a salary to its members, which limits the compromise from some of the members.
The Guardian published a comprehensive article about CICs.
If you want to learn more about it or if you like to register a CIC yourself, visit GOV.UK
You can also hire a law firm or service to set up a CIC