Filing for a Community Interest Company (CIC)

What are CICs?

A CIC is a type of company that is seen as a social enterprise which exists to benefit people of the community.

Types of Community Interest Company Structures:

A CIC can either be a company limited by guarantee or limited by shares, so you need to determine which company type is appropriate to you.
The main thing that you should take into consideration when deciding amongst the two is whether you are looking to pay dividends, as this can only be done via a company limited by shares. If you have no intentions of paying dividends, a CIC limited by guarantee might be best structure.
To further explain the differences between the two, a community interest company limited by guarantee is owned by members who agree to contribute a fixed amount- this can be a small amount like a £1 if the company is wound up. No further personal liability beyond their guaranteed amount is expected. A CIC limited by shares has shareholders and its structure is similar to a standard limited company. Shareholders are only liable based on the value of the shares they own- hence, a limited liability.

How to set up a CIC company?

You’ll need to submit a ‘community interest statement’ using the CIC36 form, which explains what your business plans to do and how its activities will benefit the community; this form helps determine whether your CIC meets the community interest test. Your company needs to continually meet this test but reasons why the company might not satisfy the test include: if the activities mainly serves the interests of a specific group, such as only its members or the employees of one employer. rather than the wider public, or it engages in political activities rather than the benefit of the company.

An ‘asset lock’ is required and should be clearly stated in the company’s articles of association. It is a legal clause that ensures assets of a company are used for the stated purposes of the organisation (for the benefit of the community as intended) rather than for private gain.

A constitution- the memorandum of association and articles of association form the constitution for a CIC, and you can use the model constitutions for guidance when preparing the forms as long as they are applicable to your company.

The memorandum is a legal statement confirming the names of the initial members (subscribers) who wish to form the CIC and agree to become members. The articles of association provide a framework for how the company will be operated and managed, outlining the responsibilities and duties of the directors, the structure of the community interest company, and the rules that govern it. They also cover procedures for meetings and decision-making, the rights of members or shareholders (depending on the CIC’s legal form), and include specific provisions such as the asset lock to ensure the company’s activities and assets remain focused on benefiting the community.

Finally, your company has to be approved by the Community Interest Company Regulator, but there’s nothing extra you have to as your application with Companies House is automatically sent to them.

Advantages of CICs:

Clear social purpose
CICS highlight their clear responsibility to a public cause or the benefit of the community. This transparent social purpose can build confidence and trust among investors, stakeholders, and the general public.

Accessibility to finance
Compared to standard companies, community interests have greater access to a wider range of financing options. Their clear social mission makes them eligible for grants, social investment, and government-backed funding schemes that are often unavailable to traditional for-profit businesses. However, there are some restrictions, as grants and funding that are extended to charities are not necessarily available to CICs.

Reduced regulatory governance
Unlike charities which are subject to ongoing rigorous governance, CICs have relatively more freedom from regulatory restraints which offers CICs the benefit of being able to focus on their social objectives

Disadvantages of CICs:

Administrative burden and ongoing compliance
As well as having a fair amount of paperwork to get set up as a CIC successfully- with both Companies House and the CIC regulator, CICs are still subject to specific regulatory requirements. They are expected to file an annual report (CIC34) and accounts. The CIC34 report is a report that details the community interest's activities that have benefited the community, details of directors’ remuneration or any dividends declared, any asset transfers and consultations with stakeholders. Essentially, the purpose of the CIC Report is to prove that the CIC is satisfying the community interest test and that its activities continue to benefit the community.
There are two types of CIC report to choose from- simplified and detailed. However, for most CICs, the simplified report is suitable but those with complex financial arrangements or CICs limited by shares the detailed would be better suited.

Lack of tax breaks vs a charity
Charities enjoy significant tax advantages that Community Interest Companies (CICs) do not. A common misconception is that CICs are exempt from Corporation Tax—but in fact, they are fully liable, just like standard limited companies, and must pay Corporation Tax on their trading profits. In contrast, registered charities benefit from a wide range of tax reliefs, including exemptions from Corporation Tax on most types of income (e.g., donations, grants, trading profits related to their charitable purpose), business rates relief (charitable rate relief which can give you up to 80% off your business rates bill), and eligibility to claim Gift Aid on donations. These substantial tax breaks often make charities more financially efficient than CICs when operating for public benefit.

Dividend pay-out restriction vs standard ltd company
Unlike standard limited companies, CICs are imposed with a dividend cap, which helps ensure that dividends payments remain proportionate to both the amount invested and the company’s overall profitability. The dividend cap strikes a fair balance by rewarding investors while ensuring that most of a CIC’s profits are used to benefit the community. No more than 35% of a CICs distributable profits can be distributed as dividends. Any unused dividend capacity (within 35%) can be carried forward to the next year.

Filing requirements with Companies House + HMRC