A Community Interest Company (CIC) is an enterprise established to generate a profit for the benefit of the community.
CICs first appeared in 2005 and were designed to address the lack of non-charitable businesses or community-based companies.
For example, CICs began to be established to manage community facilities, such as swimming pools, community centres, and other assets that were being sold by local authorities.
Today, there are around 30,000 CICs of all sizes across the UK (2024), operating in a wide range of sectors, including health, the arts, media, education and social work.
So, what are some of the unique features of a CIC, how are they financed, and how do you go about setting up this kind of company?
Features of a CIC
Basically, a CIC is a normal company that can be limited by guarantee, or limited by shares.
What makes a CIC distinct is that it has a lock on its assets and is limited to the profits it can distribute to shareholders or members.
All assets have to be used for the community purpose; if the assets are sold, the proceeds have to be used for community purpose.
If a CIC ceases trading, its assets must be transferred to a similar asset-secured company.
The community interest test
When applying to set up a CIC at Companies House, you must tell the regulator how the company passes the community-interest test. In other words, there must be a clear benefit to the wider community, not just the members of the CIC.
All directors must sign a community interest statement to this effect.
If the regulator refuses the application, you have the right to appeal the decision.
Converting to a CIC
Existing companies can convert to CICs by passing the required resolutions and submitting a signed community interest statement for the regulator’s approval.
A charity that wishes to convert to a CIC must first seek permission from the Charity Commission.
How do CICs and charities differ?
One major difference is that directors of CICs are paid a salary and retain control of the company, whereas charities tend to be run by volunteer boards.
The asset lock is also unique to CICs, and thanks to the social purpose of the enterprise, they can legitimately apply for grant funding usually restricted to charities.
In fact, recognising the advantages of CICs, a number of charities operating trading arms have converted to this model.
It’s worth pointing out, however, that to date, CICs don’t enjoy the same tax advantages as charitable organisations.
Financing a CIC
Subject to certain rules, both companies and individuals can invest in a CIC and finance can also be raised through bonds and/or loans.
If a CIC is set up as a company limited by shares, there is a statutory limit on the payment of dividends as well as the amount of profit that can be shared through dividends.
This limit or cap is subject to change, so check with the regulator here.
Who regulates CICs?
CICs are overseen by the Office of the Regulator of Community Interest Companies. Regulation is generally light-touch compared with charities, but the regulator can step in if complaints are made or the community interest appears to be at risk.
Like all registered companies, CICs must file a confirmation statement and annual accounts with Companies House each year. In addition, CICs must prepare and file a community interest report that sets out:
- what the company has done to benefit the community,
- how it has involved stakeholders and members in its activities,
- and details of any payments made to directors or dividends issued (if applicable).
The community interest report is submitted alongside the annual accounts and becomes part of the public record.
What’s in a name?
The regulator stipulates that the name of the CIC must end in a prescribed designation, such as ‘community interest company’. Otherwise, the same rules that apply to company names also apply to CICs.
How to set up a CIC
You can apply to set up a CIC by paying the application fee and completing a form – see here.
You’ll need to state the social purpose of the enterprise and the activities the CIC will undertake to achieve this goal.
Articles of association and details of directors are also required.
Registering a CIC typically takes around two to three weeks to complete.
Read our guide to the main types of UK companies.
