Community Interest Companies – benefits and challenges of CICs

Before starting your own business, you need to choose the most appropriate business structure.

It’s essential to choose the structure that best suits your business as it can affect day-to-day operations, how and when you pay tax and the level of personal liability.

The common structures include:

Learn more in this detailed guide to business structures opens in new window.

However, if your start-up is on a mission to benefit the local community or deliver solutions to improve quality of life or tackle environmental issues, a community interest company might be the right option.

 

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What is a CIC?

A community interest company is a limited company that operates to provide a benefit to the community or environment rather than simply make profits for shareholders. Designed specifically for social enterprises, the structure supports activities from small local community projects to large-scale multi-million-pound services.

CICs are monitored and regulated by The Office of the Regulator of Community Interest Companies opens in new window to ensure they operate in the community’s interests.

Read more about setting up a social enterprise opens in new window and a CIC.

Benefits of starting a CIC

CIC structures can provide specific benefits for your social enterprise start-up over other structures.

Commitment to social goals

While any business can claim that they’re using their product/service for the greater good of the community, CICs and charities are required to have and maintain a clear social mission. Implementing a CIC structure for your start-up assures the public, consumers and investors of your social objectives.

Access to finance

More donors and investors may contribute financially to a CIC as they’re assured that their donations will go towards the social purpose of the business rather than used to pay shareholders.

Quick and easy to set up

CICs can be relatively easy to establish and involve sending an online application form to Companies House opens in new window with a filing fee payable by card or PayPal. The Government’s CIC page opens in new window has step-by-step instructions for completing the form.

Limited liability

CICs are limited companies which means the business is a separate legal entity.

Asset lock

Fundamental to a CIC, the asset lock opens in new window guarantees that the business assets are used for the community. If the CIC is dissolved, any assets will go to a similar CIC company and won’t be shared as profit.

Challenges of starting a CIC

A CIC structure may not be suitable for every business, and there are potential challenges in going down the CIC route.

Limited public knowledge

Customer awareness can be quite low as CICs are less well-known business structures. This lack of understanding may impact how many donors, investors, or volunteers are interested in your business. Individuals may feel more comfortable donating to a charity as they’re more familiar with charity funding.

Transparency of your business may increase public awareness and help them learn about how your business funds for the community.

Limited access to some funding

Different business structures are eligible for different types of funding, schemes and finance options. Having a CIC may limit what options you have regarding funding and support.

Governance requirements

A CIC must report annually to the Companies House, HMRC and the CIC regulator. The regulator has the authority to investigate your CIC and take action if they have any concerns. Concerns may include breaching regulations, such as not supporting the cause it set out to help. Further information can be found in the Corporate Governance opens in new window leaflet.

Cannot be converted

A CIC cannot be converted into another business structure. The company will have to be dissolved and the assets transferred to another CIC or similar or changed into a charity.

Fewer tax breaks

CICs have fewer opportunities for tax relief than charities that can claim tax relief in different areas. This is regardless of whether all their profits go towards social purpose. Business rates and taxes may also take a large chunk of money from the company income.

To help combat some of the disadvantages, promoting your CIC may be a good way to get funding. The more the public is aware of your cause as a CIC, the more they’ll understand and be willing to donate.

 

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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

 

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