CIC - Community Interest Company

The structure of Community Interest Company (CIC) for social enterprises became available from 1 July 2005. A social enterprise is a business with primarily social objectives, whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profits for shareholders and owners. 

A CIC is a type of incorporated organisation, which means it has its own legal identity which is separate from the legal identities of its members.

The CIC legal structure is ideal for organisations that will make the majority of their income from selling a service or a product and want to access loans to grow. It is not a good legal structure for organisations that plan to make their income from applying for grants.

CICs at a Glance

Some of the main points about CICs are: 

  • CICs register with Companies House as a company limited by guarantee or a company limited by shares, then apply for CIC status to the Regulator of Community Interest Companies. The CIC Regulator must be satisfied that the organisation meets a community interest test and will genuinely operate for the benefit of the public
  • CICs are subject to the general framework of company law but have additional reporting requirements, such as producing an annual community interest company report with information relevant to CIC status
  • A CIC must have “Community Interest Company” or C.I.C. as part of its name. “Limited” cannot be used in its name
  • CICs do not have charitable status and so they are not entitled to the tax reliefs and rate reliefs that charities get. CICs must pay corporation tax and VAT at the same rate as other companies. Local councils will occasionally offer reduced business rates to CICs, but this is not mandatory
  • A CIC can pay its directors, provided the payment is reasonable
  • A charitable company based in England or Wales can convert to a CIC, but only if the Charity Commission agrees that it is in the charity’s interest (this may not be very likely, given the loss of tax and rate reliefs).
  • CICs can also convert to a CIO. 

The Asset Lock

CICs have an asset lock which prevents assets from being used for purposes that are not for the benefit of the community. The asset lock cannot be removed. This means, for example:

  • Profits and other assets cannot be distributed to members of the CIC, except in very limited circumstances.
  • A CIC can borrow money, but there is a limit, set by the Regulator, on how much interest it can pay
  • A CIC set up as a company limited by shares can issue shares. However, there is a cap, set by the Regulator, on the level of dividends and on how much of the CIC’s assets can be paid as dividends
  • A CIC’s assets can usually only be sold at full market value, with the CIC recieving the equivalent value in cash. The sale or transfer of assets to another asset-locked body (such as a CIC or a charity) may be exempt from this rule.
  • There are limits to the amount that directors can be paid

Pros of the CIC Structure

  • A recognised legal structure which provides legitimacy and assurance
  • More flexibility around trading activities than charities
  • Relatively quick and easy to set up (when compared with charities)
  • Can access loans and debt in ways that CIOs can find harder to access
  • Limited liability for members and directors
  • Some flexibility in governance- CICs can be set up to function as organisations run by one person, or as fully mutual co-operatives run by lots of members.

Cons of the CIC Structure

  • Limited access to grant funding when compared with charities
  • CICs must pay tax on all of their profit- including on grants
  • Less flexibility in the use of assets when compared with companies limited by guarantee

Support to set up a CIC

We offer free advice and guidance to help you find the right legal structure for your organisation. Contact our Support and Development team on 0191 232 7445 or email connect@connectedvoice.org.uk