Creating Social Impact: Understanding Community Interest Companies - Essay Sample

Community Interest

Company is a form of social enterprise that was started in Britain by the government in the year 2005 under the Companies act. They were specifically developed for promoting social enterprises work in order to utilize the profits made and assets for the good of the public. Some of the chief elements of the community interest company include non-charitable entity, must meet the legal laws and company's requirement, it has to satisfy the community interest or legitimate test, the liability of the company is limited, restrictions on the disposal of the asset, there is a dividend interest cap which bars dividend payments from reaching shareholders to help the community benefit from profits, and lastly approval and regulations are always made through CIC regulator.

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In my own view, I strongly agree that Community Interest Companies adequately consider or support communities in positive ways. Here are some of the validation of my points. From the definition of a Community Interest Company, a business entity embodied with a primary social goal where the excess surpluses realized are properly kept aside for the reinvestment in the community or business operation without necessarily aiming at maximizing profits for business owners and key shareholders involved. They handle a variety of social, economic, environmental, and political issues in the country. By adopting proper solutions in business operations to realize the perfect public image, they help to promote sustainable and social goals, which enable the stabilization of the economy. They maintain their objective social goal instead of the shareholders' individual interest in investing heavily in the community to win a good public image (Andre, R. (2012). The point regulations of the community interest companies are made through a central regulator tends to instill much confidence in the public domain about the company's integrity. In addition, they promote access to loans and financial assistance to the general public. The provision of finance through different forms helps to establish a significant social enterprise, not an independent company hence fostering good financial integrity.

Another advantage of the community interest company that there is a limited liability. This promotes the protection or security of the owners and shareholders of the business. It can also provide full protection to various assets in the company. Moreover, it tends to create familiarity. Both the directors and shareholders have got a high chance of creating a good rapport with those running the business at all levels, and again to the community, they are able to interact freely without any barrier. Another point is that the management of the community interest company is flexible in its structural form. It is highly flexible to satisfy the individual's demands coming from different companies. It can also be started as a private limited company using public limited company guarantee or shares. A company's guarantee will specifically be more familiar to those who are conversant with a history working in a most charitable organization, and again CIC started a limited company by creation shares that may donate shares in order to raise or form more capital. Limited CIC formed using shares may also promote the payment of dividends, which can highly attract customers.

Nevertheless, CIC has got a continuous objective or purpose. Being a form of a limited company, Community Interest Company has its own legal document and will continuously operate, in full responsibility, to benefit the community at large until it becomes a charitable organization through dissolvent. In the case of dissolvent, a key element of the company states that all residual assets accumulated must be transferable to one of the other asset-lock entities, either another new charity or charitable organization. This is to maintain the policy that all funds invested or accumulated in the community interest company will perpetually continue to reward or benefits the society even if the company is not functional.

The seventh advantage is that the formation is much easier and quicker. It is always easier and cheap to form as compared to charitable organizations, with only one application form sent to the Companies top house, which all members and regulators of the company go through before the approval. In a charitable organization, incorporating a company has to be involved with Company's top house is when prior application follows to the commission of charitable organization for registration, which may take several months before being processed. The eighth is that governance requirement is less complex. There is always less requirement in pursuant for governance more than a charity. The Company is regulated by one chief CIC regulator, while the Charity is managed by Charity Commission, which involves strict procedures. This gives the community interest company a noble chance of achieving its objectives with no restrictions on transactional activities as compared to charity.

Another point is that there is no legal requirement to determine payment and strategic control. The board directors involved in the management of a charity only get the payment where the constitution strictly support and must be clearly approved in the best proper demands of the charity. It is therefore evident that one can never get payments for services and maintain strategic chain control of the operation of the charity while on the hand community interest company have strategic control over the operation of the business on the appointment and payment is fairly made to the section of directors for the well job done In the company. This makes it easier to lure more individuals to the CIC (Agafonow & Donaldson 2015). Lastly, CIC is home to the wide possibility of social goals and a general aim on social enterprise. Social goals and objectives can be easily achieved in CIC than in charitable organizations. It means that there are a lot of goals that are only possible through CIC but not through charity. The model of CIC is recognizable through social enterprise. The social enterprise and well known for achieving realizable social goals.

Social Enterprise

Community Interest Company is a form of social enterprise. Social enterprise can be strategically formed for-profit or non-profit motive. They both contain social and business operation goals. The main of a social enterprise is to make social improvements. A social enterprise is able to support people living in poverty despair through income provision schemes as they don't solely survive on philanthropy and are able to operate efficiently in the long-run. There different types of social enterprises depending on the objectives. They include trading enterprises, community organizations, financial institutions, and non-governmental organizations.

A Brief History of the Origin of Social Enterprises

The origin of social enterprise can be traced back to the 1970s in Britain as an alternative means of commercial business organization to support private businesses, public enterprises, and co-operatives. The idea had five main pillars for its appropriate effectiveness, which were categorized into three important values and two main paradigm shifts. The three values included the creation of wealth, operating under environment-friendly measures, and the ability to trade and accumulate funds independently. The two paradigm shifts included a strong democratic system in governance where members of the community merit with a vote and a formal legal structure of ownership where members or owners have got a single voting share and various forms of investment opportunities. Moreover, it was originally agreed that social enterprises should report, plan, and measure the overall financial performance, environmental issues, and social-wealth generation through an integrated auditing system and social management accounting.

Some of the legal laws and principles embodied in social enterprises act originated from non-profit organizations. Initially, non-profit organizations depended on the public and government agencies for support, but these recent days they have begun to operate efficiently and independently from the number of profits generated in their social operations. The so-called Social Enterprise Alliance cites the following positive reasons for the transformation. Increment in the operating cost of non-profits, a decrease in both the public and government agencies support, a stiff completion due to expansion in the charitable organizations' sector, and lastly, increased demand for the available non-profit services (Defourny & Nyssens 2014).

Social enterprises are basically believed to have been formed from non-profits in an evolution trend. The creation process led to the form of a new organization that lacks boundary limits. Most scholars argued that this might have arisen as a result of marketing in the non-profit sector, which led to most non-profit organizations focusing on income generation. While a section of scholars also have adopted the institutional theory to explain that non-profit sectors have embraced social enterprise models since the models have been meaningful and warmly accepted. Some reputable organizations have also transformed into formidable social enterprises while some being formed as social enterprises. The conception of a social enterprise as a democratically and independently trading organization, which has social goals and operates in a proper environment, was first founded by Freer Spreckley in Britain in 1978.

Conclusion

Community Interest Company, as an example of social enterprise, may also have disadvantages to the communities. They include restriction of certain types of finances, lack of public awareness, a lot of restrictions in the use of the company's assets, restriction on the dividends given, added governance entity requirement.

References

Agafonow, A., & Donaldson, C. (2015). The economic rationale behind the social business model: A research agenda. Social Business, 5(1), 5-16.

Andre, R. (2012). Assessing the Accountability of the Benefit Corporation: Will This New Gray Sector Organization Enhance Corporate Social Responsibility? Journal of Business Ethics, 110(1), 133-150.

Defourny, J., & Nyssens, M. (2014). The EMES approach of social enterprise in a comparative perspective. In Social enterprise and the third sector (pp. 58-81). Routledge.