What is a Community Interest Company?

For an overview of different business types in the UK, see Business Structures.

A community interest company (CIC) is a type of limited company designed for social enterprises that want to use their profits and assets for the benefit of a community. CICs were introduced by the Companies (Audit, Investigations and Community Enterprise) Act 2004 and are regulated by the CIC Regulator, an independent office within the Department for Business and Trade.

CICs sit between standard commercial companies and charities. They offer the operational flexibility of a limited company while building in safeguards that ensure the company serves community purposes.

Key Features of a CIC

The Community Interest Test

Every CIC must satisfy the community interest test. This means the company’s activities must benefit the community or a section of the community, and a reasonable person would consider those activities to be carried on for the community’s benefit.

The community can be defined broadly or narrowly, but it cannot consist solely of the company’s own members or employees. Examples of qualifying activities include:

• Providing affordable housing
• Running community transport services
• Delivering training and employment programmes
• Operating social care or health services
• Managing community facilities or green spaces

The Asset Lock

The asset lock is the defining feature that distinguishes CICs from standard limited companies. It ensures that the company’s assets and profits are used for community purposes:

• Assets can only be transferred for full market value or to another asset-locked body (such as another CIC or a charity)
• On dissolution, residual assets must go to another asset-locked body, not to members
• Dividends are subject to a cap set by the CIC Regulator (currently 35% of distributable profits)
• The aggregate dividend cap limits total dividends paid over time

The asset lock provides assurance to funders, donors and the community that the company’s resources will remain committed to its social purpose.

Types of CIC

A CIC can be formed as either:

Most CICs are limited by guarantee, particularly those that do not need to raise equity investment. CICs limited by shares are used when the founders want to attract private investment through dividends (subject to the dividend cap).

Formation

Forming a CIC involves an additional step compared to registering a standard limited company with Companies House:

1. Prepare formation documents including the memorandum of association and articles of association
2. Complete the CIC36 form (community interest statement) describing how the company’s activities will benefit the community
3. Submit to Companies House along with the standard incorporation documents (form IN01)
4. Companies House forwards the application to the CIC Regulator for approval

The CIC Regulator assesses whether the proposed activities satisfy the community interest test. If approved, the company is registered with “Community Interest Company” or “CIC” in its name.

Companies House charges a registration fee for a CIC, which is higher than the fee for an ordinary limited company. Check the current fee on GOV.UK before you apply.

Converting an Existing Company to a CIC

An existing limited company can convert to a CIC by passing a special resolution and submitting a community interest statement. The company’s articles must be amended to include the required CIC provisions, including the asset lock. The CIC Regulator must approve the conversion.

Governance

CICs follow the same governance framework as standard limited companies under the Companies Act 2006:

• Must have at least one director (two or more recommended for good governance)
• Directors owe the same statutory duties under sections 170-177 of the Companies Act 2006
• Must hold annual general meetings if required by the articles
• Must maintain statutory registers and file changes with Companies House
• Must appoint auditors if not exempt

Directors’ Pay

Unlike charities, CICs can pay their directors for their services. This makes the CIC structure attractive for social entrepreneurs who want to run a mission-driven business while earning a living.

Reporting Requirements

CICs have additional reporting obligations on top of standard company filings:

CIC Annual Report (CIC34)

Every CIC must submit a CIC annual report alongside its company accounts. The CIC34 form requires:

• A description of the community interest activities carried out during the year
• Details of any dividends paid and to whom
• Information on transfers of assets during the year
• Details of directors’ remuneration
• Consultation with stakeholders

Accounts Filing

CICs must file accounts with Companies House within the same deadlines as standard limited companies:

• Nine months after the financial year-end for private CICs
• Six months for public CICs

Small CICs may file abbreviated accounts and claim audit exemption if they meet the size thresholds.

CIC vs. Charity

The key trade-off is that CICs do not receive the tax advantages available to charities, such as Gift Aid, mandatory business rates relief and certain VAT exemptions. However, CICs have far greater operational flexibility and fewer restrictions on trading and political activity.

Funding a CIC

CICs can access a range of funding sources:

• Grants from government, lottery funds and trusts (many funders specifically target CICs)
• Social investment including loans and equity from social investors
• Trading income from selling goods and services
• Donations (though without Gift Aid tax relief)
• Community shares (for CICs limited by shares) — a form of withdrawable share capital popular with community-owned enterprises

The asset lock and CIC annual report give funders confidence that their investment will be used for community benefit.

Advantages of a CIC

• Clear social purpose — the CIC brand signals community benefit to customers, funders and partners
• Asset lock provides legal protection for community assets
• Operational flexibility — can trade, pay directors and distribute capped dividends
• Lighter regulation than charities, with no Charity Commission oversight
• Access to social investment and grant funding specifically for CICs
• Simple formation — standard company registration plus CIC36 form

Disadvantages of a CIC

• No tax advantages — CICs pay corporation tax on profits like any other company
• Dividend cap limits returns to investors
• Asset lock restricts what can be done with the company’s assets, even if circumstances change
• Additional reporting through the CIC annual report adds administrative burden
• Less well known than charities among the general public
• Cannot convert to a charity without CIC Regulator approval

When Should You Choose a CIC?

A CIC is a good fit if:

• You want to run a social enterprise that trades for community benefit
• You need operational flexibility that a charity cannot offer
• You want to pay directors and potentially distribute some profits
• You want the credibility of a regulated social enterprise structure
• Tax relief available to charities is not a decisive factor for your business model

If your primary concern is tax efficiency and you can operate within charitable restrictions, a registered charity may be more appropriate. If you have no social purpose and want maximum commercial freedom, a standard limited company or LLP would be a better choice.

Related Concepts

• Companies House — where CICs are registered
• Articles of association — the constitutional document for CICs
• Director duties — statutory obligations applying to CIC directors
• Company accounts — financial reporting requirements
• Confirmation statement — annual filing with Companies House