For anyone driven by social causes and aspiring to combine entrepreneurship with a commitment to community welfare, the community interest company (CIC) is a typical choice.
In this article, we’ll cover everything you need to know about the community interest company structure, the benefits of operating as a CIC, and how to set one up. Let’s get started.
What is a community interest company?
A community interest company (often abbreviated to ‘CIC’) is a hybrid corporate structure that combines features of a traditional limited company with a strong focus on social impact and community benefit.
CICs were first introduced in 2005 to provide a legal framework for social enterprises or not-for-profit projects, as an alternative to a charity or ordinary business model.
A CIC is structured like a normal limited company, meaning they:
- must be registered at Companies House
- need a memorandum and articles of association
- must comply with company law
- can be incorporated as limited by shares or limited by guarantee
- can be set up as private limited companies (LTD) or public limited companies (PLCs)
- are legal entities that are separate from their members
- provide limited liability protection to their members
- trade and operate in the same way as other businesses, with the goal of making a profit
However, there are some distinct differences. CICs will need to comply with The Community Interest Company Regulations 2005. This means they must:
- adopt a memorandum and articles designed specifically for CICs
- provide a ‘community interest statement’, which details the social objectives of the CIC
- create an ‘Asset Lock’ ensuring assets are exclusively utilised for the community’s benefit and not transferred to any individual
- gain approval from the Office of the Regulator of Community Interest Companies to run as a CIC
CIC vs. charity – what’s the difference?
While both CICs and charities are centred around social good and community benefit, they differ fundamentally in their organisational structures and legal frameworks.
Charities are registered with the Charity Commission and operate exclusively for public benefit. They are bound by charity law and must adhere to the Charities Act 2011.
On the other hand, CICs operate with a dual focus on both community benefits and generating income, allowing for more commercial activities than traditional charities. CICs are regulated by the Office of the Regulator of Community Interest Companies, which oversees their compliance with the Community Interest Company legislation.
As a CIC, a significant portion of your funding usually comes from trade, and the profits generated are reinvested back into running the company. Conversely, a charity primarily relies on funding from donations and grants.
It’s also important to note that, unlike charities, CICs do not qualify for tax relief.
CIC vs. limited company – what’s the difference?
While a CIC shares some features of a limited company, as detailed above, there are some additional steps they will need to take.
As well as registering with Companies House, in the same way as a normal limited company would, they must also register with the CIC Regulator. In addition to complying with company law, they must also adhere to CIC legislation.
Most notably, a CIC must use its assets and surplus income for the benefit of the community and its social objectives, rather than distributing profits amongst its members, as with a normal limited company.
However, CICs are able to pay dividends restricted to a maximum of 35% of distributable profits to its shareholders.
In the event of a typical limited company’s dissolution, any remaining profits and assets can be allocated to its members. But when a CIC is dissolved, the regulations tied to the ‘Asset Lock’ stipulate that the company must transfer its assets and profits to another CIC or a designated charity.
What are the benefits?
There are a number of reasons someone would choose to set up a community interest company. Let’s take a look at some of the most obvious benefits below:
1. A strong focus on social impact
If you have a deep-rooted passion for a social cause, whether it’s related to the environment, education, healthcare, poverty alleviation, or community development, a CIC provides a structured platform to channel your efforts and resources toward creating meaningful change.
2. Protection of limited liability
One of the main advantages of a CIC is limited liability. In the exact same way as a limited company, the personal assets of the directors and members are protected, and they are only liable for the company’s debts to the extent of their investment or guarantee.
3. Funding opportunities
CICs have access to various funding opportunities available specifically for social enterprises. This includes grants, impact investment, and other financial support aimed at encouraging and sustaining businesses with a strong community focus.
4. Flexibility of limited company structure
The limited company structure is relatively simple to set up and manage, in comparison to the more complex charity model. It also provides ease when dealing with organisations such as governmental bodies.
Having this legal entity means your CIC has the option to be set up as a private company limited by shares, limited by guarantee, or a public limited company.
How to set up a community interest company
To set up a community interest company in the UK, you will need to follow the six steps outlined below:
Step 1. Decide your CIC’s directors and members
Your CIC requires at least one director and one member. This may be the same person or a group of people.
Directors play a crucial role in decision-making and the day-to-day operations of the company. Ensure they are aligned with the social mission of the CIC, and possess the necessary skills and commitment to drive the business towards its community-oriented goals.
Step 2. Choose a suitable name
The name of your CIC should reflect the nature and purpose of your community interest work. Ensure the chosen name is unique, available for registration, and resonates with the values and objectives of your CIC.
It’s also important to note that if you’re registering a private company, you should include ‘community interest company’ or ‘CIC’ at the end of your chosen name (or the Welsh equivalent). If you are setting up a public company, the name should include ‘Community Interest Public Limited Company’ or ‘Community Interest PLC’ at the end.
Step 3. Write your community interest statement
Next, you’ll need to craft your community interest statement – a vital step in the CIC application process.
Think of it as a mission statement, outlining the social purpose and objectives of your CIC in clear detail; including how your business will benefit the community, the types of activities you have planned, and how you intend on carrying them out.
Your statement will need to be written on form CIC36 as part of the registration process. This will later be reviewed by the CIC Regulator, who will refer to it to determine if your plans fulfil the community interest test and if you subsequently qualify for CIC status.
Step 4. Establish your constitution
The constitution of your CIC comprises two essential documents: the memorandum of association and the articles of association.
The memorandum of association lists the names of your members and is created automatically, provided you register your CIC online.
Articles of association outline the rules and social objectives in terms of how your business will work in the best interests of the community.
Unlike regular limited companies, CICs do not have the option to adopt standard articles from Companies House. Instead, the CIC regulator provides model constitutions designed specifically for CICs.
Step 5. Create an ‘Asset Lock’
As touched on earlier, a central feature of CICs is an ‘Asset Lock’. This is essentially a legal promise that pledges to only use the company’s assets in line with your social objectives.
You’ll need to refer to your ‘Asset Lock’ within your CIC’s articles of association.
Additionally, you will need to assign an ‘asset-locked body’, which may be another CIC or a charity, who will receive the assets should you dissolve your CIC in the future.
Step 6. Register with Companies House
Once you’ve followed the above five steps, you’ll need to officially register your CIC with Companies House. The quickest and easiest way to do this is online, via GOV.UK.
You’ll need to:
- Create a Government Gateway user ID and password (for your company, not a personal one)
- Complete the Companies House form IN01: application to register a company, including your company name, legal structure (e.g. private/public, limited by shares/guarantee), registered office address, details of directors and members, and any issued share capital.
- Complete form CIC36: application to form a community interest company, as detailed above.
- Upload your supporting documentation, including your community interest statement and CIC constitution.
- Pay a registration fee of £27 by card or PayPal.
Once your application is submitted, it will be reviewed by the CIC Regulator, and you will most likely receive approval within two working days.
It is also possible to set up your CIC by post. However, this will cost slightly more at £35 and take longer (up to 15 days) to process.
For more information on registration, visit GOV.UK.
We hope this post has helped clarify what a community interest company is, and that it’s provided you with enough information to decide if a CIC is the right choice for your business plans. Remember, it’s always a good idea to consult a professional for advice before making any formal decisions.
If you have any questions, or you’d like help forming your company, contact our team of experts today.