A community interest company (CIC) is a special type of UK company designed to serve communities rather than generate profits for shareholders. Introduced in 2005, CICs are popular among businesses that want to create a positive social or environmental impact. In this guide, we'll cover what a CIC is, the pros and cons, common alternatives, and the full process of setting up a CIC.
CIC meaning
The main aim of a CIC is to use its assets for public good rather than private financial gain. Typically, it still operates as a business, but with the profits reinvested into its cause. A CIC company is registered with Companies House and HMRC - some people see it as a sort of middle ground between a charity and a company. Some of the key features of a CIC include:
They are legally required to demonstrate that their activities benefit the community
They have specific limits on the amount of profit that can be distributed to shareholders
They need to create annual accounts of the business' results and objectives
Asset locks explained
Asset locks also apply to CICs. This is a legal clause that stops assets from being used for private gain. It's designed to make sure CIC assets are only used to benefit the community that it was made to help. For example, an asset lock means no assets can be transferred from a CIC to a limited company. Plus, any assets that are donated to a CIC will always be seen as part of the CIC's assets.
What are the advantages of a CIC?
CICs offer unique benefits, but they also have limitations. Here's a breakdown of the advantages and disadvantages to help you decide if this structure is right for your organisation.
Clear community focus: The CIC structure provides a transparent way to show stakeholders that your organisation is committed to benefiting the community.
Operational flexibility: A CIC can convert to become a charity if it wants to (and if the regulators agree to the change). And vice versa, charities can become a CIC if they see the benefits.
Access to funding: There are some finance options only available to charities or CICs. For example, access to grants, social investment, and private donors.
Credibility and trust: CICs can give the impression of acting as a ‘not for profit’. Plus, the asset lock mechanism can enhance credibility among funders, partners and the public.
Legal protection: CICs offer limited liability, protecting directors and members from personal financial risk.
What are the disadvantages of a CIC?
Incorporation: When incorporating a CIC, there's more paperwork and a longer approval process. Businesses must submit form CIC36, signed by all potential directors, plus a description of the proposed social purpose of the company.
Restrictions on assets: CICs have caps on the payment of dividends and the use of assets. For example, just 35% of a business's yearly profit can be paid in dividends to shareholders (which may deter traditional investors).
Regulatory requirements: CICs must submit a community interest report annually to show their community benefits. This includes a general description of the company's activities and insight into the directors' remuneration for the year. It's a small but significant admin task to consider.
Limited tax benefits: Unlike charities, CICs do not receive tax exemptions or reliefs (like gift aid), which may impact how much you can raise for your cause. They are also subject to Corporation Tax on trading profits in the same way as a trading Limited company.
Perception challenges: Not everyone is familiar with what a CIC is. Some donors may also prefer or feel more comfortable donating to a Charity as they don't have 'members' to fund.
Asset lock restrictions: The asset lock can limit flexibility when it comes to reinvesting or transferring assets.
Examples of community interest companies in the UK
CICs operate across a wide range of sectors, from education and healthcare to environmental conservation and arts. Here are some popular UK examples:
Belu Water: A sustainable bottled water company that donates 100% of its profits to WaterAid, improving access to clean water globally.
Eden Project: This educational charity and social enterprise is also a CIC, promoting sustainability through its ecological visitor attractions.
Hackney Co-operative Developments CIC: A CIC focused on creating opportunities for local businesses and entrepreneurs in Hackney, London.
What are the alternatives to a community interest company?
While CICs are a popular choice for mission-driven businesses, they are not the only option. Here are some alternatives:
Charities
Charities focus solely on public benefit and enjoy significant tax advantages. However, they are subject to stricter regulations and must comply with charity law.
Social enterprises
While not a formal legal structure, social enterprises can operate as companies, charities, or CICs, focusing on social impact alongside profit generation.
Co-operatives
These member-owned organisations prioritise shared goals and profits among members, often with a focus on social or community objectives.
Limited by guarantee companies
Similar to CICs but without the community interest requirements, these companies are commonly used for non-profits and social initiatives. Learn more in our full guide to companies limited by guarantee.
What is the difference between a community interest company and a charity?
Both CICs and charities aim to benefit the public, but they differ in several ways. Generally, an organisation can only be a charity if it is established solely for charitable purposes. If in doubt, seek guidance from the Charity Commission.
Aspect | CIC | Charity |
|---|---|---|
Primary focus | Community benefit | Public benefit |
Regulation | Regulated by the CIC Regulator | Overseen by the Charity Commission |
Tax benefits | No significant tax exemptions | Enjoys tax reliefs and exemptions |
Profit distribution | Limited, with caps on shareholder returns | No profit distribution allowed |
Flexibility | Greater operational flexibility | Stricter legal requirements |
How to set up a community interest company
Setting up a CIC involves several steps to ensure compliance with legal and regulatory requirements. Here’s how to do it:
1. Choose a company structure
Decide whether your CIC will be limited by shares or guarantees. This choice affects ownership and profit distribution.
2. Prepare the CIC documentation
Memorandum and articles of association: Include clauses demonstrating the community benefit focus. If you need legal support, our memorandum of association solicitors can help.
Community interest statement: Explain how your activities will benefit the community.
3. Register with Companies House
File the appropriate forms and pay the registration fee.
4. Submit to the CIC Regulator
The application is reviewed to ensure compliance with community interest requirements.
5. Open a business bank account
Set up an account to manage funds and comply with asset lock provisions.
6. Develop a business plan
Outline your objectives, target beneficiaries and funding strategies to attract support.
7. Begin operations
Once approved, you can start delivering community-focused activities.
FAQs
What does CIC mean?
CIC stands for community interest company, a UK-specific legal structure for socially-driven businesses.
What is a CIC company?
A CIC company operates with the dual goals of generating income through trading and delivering measurable community benefits.
How does setting up a CIC differ from starting a charity?
Setting up a CIC involves registering with Companies House and the CIC Regulator, while charities register with the Charity Commission and are subject to stricter regulations and tax benefits.
How many community interest companies are there in the UK?
According to Gov.UK, for 2022-2023 there were 28,878 CICs on the public register.
Can a CIC make a profit?
Yes, but any profit generated is mainly used to grow the business and benefit its community. Alternatively, profits can go directly to the community itself.
How much tax does a CIC pay?
A CIC pays the same amount of tax as any other company. This includes corporation tax and VAT.
Final thoughts
A community interest company (CIC) offers a flexible, credible structure for businesses that want to create positive social or environmental change. Understanding the pros and cons, alternatives, and differences from other structures like charities helps organisations make informed decisions. With the right planning and vision, a CIC can be a powerful option for driving impact while maintaining financial sustainability.
If you have a legal matter that you need help with, get a free quote today. Our small business solicitors are on hand to guide you through the legal ups and downs of starting a business.
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Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.