Unlocking the potential of community interest companies

Principal consultant Simon Hall outlines how CICs can enhance service delivery, foster innovation, and maximise social value

For the last year I have been working as interim chief executive of a wonderful community interest company, Compass Wellbeing, that is wholly owned by East London Foundation NHS Trust (ELFT).

Its mission is to reduce inequalities, enhance community wellbeing, and promote social justice in line with ELFT’s objectives as a Marmot Trust. By bridging the gap between the voluntary, community, and social enterprise (VCSE) sector and larger institutions like the NHS, Compass Wellbeing fosters seamless collaboration to build robust health and social support systems.

I have seen first-hand how this unique positioning enables Compass Wellbeing to bring considerable benefits to the communities it serves.

The rise of social enterprise

The concept of businesses with a social purpose has been evolving since the late 1970s, emerging as a response to economic and political challenges. Unlike traditional profit-driven businesses or donation-dependent charities, social enterprises aim to generate sustainable revenue while reinvesting profits into their mission.

One of the most significant developments in this sector was the introduction of community interest companies (CICs) in 2005, offering a structured approach for businesses to operate with a social purpose while maintaining flexibility and efficiency.

What makes CICs unique?

A CIC is a type of limited company specifically designed to benefit the community. It operates under strict regulations to ensure its social mission remains the primary focus. Key requirements include:

• Community interest test – A CIC must demonstrate that its activities benefit the community rather than private shareholders.
• Asset lock – Profits and assets must be used for community benefit and cannot be freely distributed.
• Limited profit distribution – A maximum of 35% of profits can be paid out as dividends, with the rest reinvested.
• Annual reporting – CICs must submit a yearly community interest report to show commitment to their mission.
• Responsible governance – Directors must prioritise social impact alongside financial sustainability.

Benefits of CICs for the public sector

CICs offer a unique blend of business flexibility and social responsibility, making them attractive partners for public sector bodies. Key benefits include:

1. Access to alternative funding – CICs can apply for grants, social investment, and funding streams not available to public sector bodies.
2. Greater flexibility – With more autonomy than local authorities or NHS trusts, CICs can respond quickly to changing needs.
3. Commercial opportunities – They can generate income through trading while staying committed to community benefit.
4. Public-private collaboration – CICs can form partnerships more easily with private businesses and charities.
5. Reinvestment in services – Surpluses must be reinvested in the community, ensuring sustainability and long-term impact.
6. Enhanced public perception – As socially responsible organizations, CICs can build trust with service users and stakeholders.
7. Attractive employment models – CICs can offer more competitive employment structures compared to public sector constraints.

Challenges and considerations

While CICs provide many advantages, public sector bodies must also consider potential challenges:

• Loss of public sector protections – Employees may lose access to benefits like pension schemes and job security.
• Regulatory burden – CICs must comply with company law and CIC regulations, increasing administrative work.
• Taxation issues – Unlike charities, CICs are subject to corporation tax and cannot claim Gift Aid or certain tax exemptions.
• Funding risks – Without guaranteed government funding, financial sustainability may be uncertain.

Ensuring effective governance

One of the most critical factors for public bodies considering CICs is accountability. Unlike local authorities or NHS trusts, CICs have less direct public oversight, making it essential to establish robust governance frameworks. Key considerations include:

• Shareholder agreements – Clearly define how the public body will oversee the CIC, including board representation and decision-making authority.
• Preventing mission drift – Ensure that financial sustainability does not take precedence over the CIC’s community mission.
• Asset lock compliance – Public bodies must understand that they do not qualify to receive assets or profits beyond allowed limits.
• Dividend cap awareness – The 35% dividend cap ensures profits remain dedicated to community purposes, preventing undue financial extraction.

CICs present a compelling opportunity for public sector bodies to enhance service delivery, foster innovation, and maximise social value. While they come with regulatory and financial considerations, well-structured governance and alignment with public service goals can ensure success.

By leveraging the unique advantages of CICs, public sector organisations can create sustainable, impactful solutions that serve communities effectively.

The Compass Wellbeing experience

The operational constraints of statutory services, particularly the ongoing challenges around resourcing, often limit how NHS trusts can address the wider determinants of health such as poverty, housing, and employment. Traditionally, NHS trusts focus on delivering clinical care reactively, with limited ability to influence these broader factors. However, Compass Wellbeing has leveraged its unique position as an agile extension of ELFT, deeply embedded within the community, to play a crucial role in advancing the trust’s Marmot ambitions.

I witnessed firsthand the invaluable role Compass Wellbeing plays as a bridge between the NHS and the local VCSE sector. Through innovative cloud-based medical device tracking and tailored support services, the CIC has streamlined processes, enhancing both cost efficiency and responsiveness. Additionally, Compass Wellbeing has responded directly to clinician-identified unmet needs, such as providing enhanced employment support for service users transitioning out of mental health facilities.

Compass Wellbeing demonstrates the significant advantages that a CIC can offer to public sector bodies. CICs have the flexibility to drive meaningful change, rapidly develop innovative approaches, and facilitate collaboration with the VCSE sector – bypassing the often complex and costly public sector procurement processes.

More importantly, CICs enable public bodies to focus on broader social impact, addressing the wider determinants of health and social justice without being confined by rigid institutional frameworks. As community-centred organisations, CICs are uniquely positioned to deliver tangible benefits for real people in real time.