Community Interest Companies, often shortened to CICs, are designed for businesses that want to make a positive social impact while still operating commercially. In this episode of the I Hate Numbers podcast, we explain how CICs work, why they exist, and when they are the right structure for a business that wants purpose alongside profit.

What Is a Community Interest Company?

A Community Interest Company is a limited company created specifically for social enterprises. It allows a business to trade, earn income, and pay staff while ensuring that profits and assets are used primarily for the benefit of the community. Unlike charities, CICs are not restricted to grant funding and donations. They can sell goods and services in the same way as a standard company, making them a flexible option for organisations that want sustainability as well as impact.

Why CICs Exist

CICs were introduced to fill the gap between traditional companies and charities. Many organisations want to do good without the heavy regulation of charitable status or the perception that profit is the main driver. The CIC structure provides reassurance to customers, funders, and stakeholders that the business is genuinely focused on community benefit rather than private gain.

The Community Interest Test

To become a CIC, a business must pass the community interest test. This means clearly demonstrating that its activities benefit a defined community rather than a small group of individuals. The test is reviewed by the CIC Regulator and helps ensure that the structure is used correctly and not as a branding or tax shortcut.

Asset Lock and Profit Restrictions

One of the defining features of a CIC is the asset lock. This prevents assets and profits from being freely distributed to shareholders.

How the Asset Lock Works

The asset lock ensures that, if the company is sold or wound up, its assets must continue to be used for community benefit. This protects the original purpose of the business.

Dividend and Profit Limits

CICs can pay dividends, but they are capped. This allows investors to receive a return while ensuring that the majority of profits are reinvested into the community.

CICs Compared to Charities

While charities benefit from tax reliefs, they are tightly regulated and restricted in how they trade. CICs offer more commercial freedom, but without charitable tax exemptions. This makes CICs suitable for social enterprises that want trading income, flexibility, and transparency.

Reporting and Compliance

CICs must file annual accounts like any limited company. In addition, they must submit a Community Interest Report explaining how the business has benefited the community. This added layer of reporting builds trust and accountability with stakeholders.

When a CIC Makes Sense

A CIC may be suitable if your business has a clear social mission, wants to trade commercially, and needs to demonstrate credibility and accountability. However, it is not the right choice for every organisation, so understanding the long-term implications is essential.

Final Thoughts

Community Interest Companies offer a practical way to combine purpose with profit. When structured correctly, they allow businesses to grow while staying aligned with their social objectives. If you are considering a CIC and want to explore whether it is right for your situation, you can book a call with us to talk it through.

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On this week's episode, I'm going to specifically talk about one particular model, the CIC, or Community Interest Company to give it its full name. Now, if you are interested in running a business that changes lives, impacts in a positive way on communities and still generates profit, so you still have that profit motivation in mind, a social enterprise could be right for you.

Now, at the heart of a social enterprise and more specifically a community interest is this idea of not only generating profits but actually use those four community benefits. Now I'm going to specifically unpack why it's so special, whether this could be the right path for you and I'm going to explore what A CIC actually evolves,

something called the community interest test, the different types of CICs (and yes, there are different types), the asset lock and the difference between a CIC and a charity. Let's crack on.

Now a social enterprise is more than just a business that's got good intentions, a good heart. It's a business that exists to solve problems, whether those are social, community-based, environmental, and at the same time making money. And when I'm talking, making money, I'm talking about making profits. What every entrepreneur, what every business owner should be aspiring to do. It’s that sweet spot between the charity world and the corporate world.

That's a social enterprise for you. Now, social enterprises do trade. Don't confuse them with charities necessarily. They generate income in their own right, but instead of that money going into shareholders' pockets (nothing wrong with that if you're a private company), most or all of the profits are reinvested back into the organisation to help carry out, fulfil their mission.

Did you know that The Eden Project and The Big Issue are two big examples of social enterprises? Now, these aren't just feel good names to make people feel warm and fuzzy. These are fully operational businesses, creating jobs, paying tax, generating profits and solving real world issues. Profit for good is a good way of looking at it.

Now, social enterprises are not dependent just on donations or grants. If they were, by the way, they would not be able to be called social enterprises. They survive and thrive by selling goods and/or services. And as they grow, the models can be copied, emulated, and rolled out in other places as well. And don't think, by the way, these are babies.

They generate immense amount of wealth, have immense impact here, and they blend the entrepreneurial with the ability to do good as well. Now, how does CICs fit into this picture, particularly? Now the idea of a community interest company, believe it or not, has come up to its 20th anniversary and it was introduced in the United Kingdom in 2005.

In my experience of over 30 odd years, it's one of the most popular legal structures for a social enterprise. It's a hybrid between a traditional, limited company and a charity. Now, even though they represent a small percentage of the overall limited companies in the United Kingdom, approximately 3 million, they are growing and I've certainly seen a growth in their popularity.

Based on the incorporations that we do for other clients here, we can certainly see there's more traction going on. But why? Well, they offer flexibility and credibility. Whether it's a small local food bank or a nationwide training provider, CICs operate across a great number of sectors and corners of the United Kingdom.

The key bit with the CIC that it is a business at its heart, but its main purpose is to benefit the community however one defines that. It can make a profit, and as a side note, folks, whatever your organisation here, if you're not covering your costs and making a profit, then your reserves will dwindle down.

We're not in the business of running hobbies here. We're in the business of doing good. Now, CICs can employ staff. It can also attract external investment. And here's the twist. It's the profit that's being used primarily to serve a social purpose. Now, if that ticks the boxes for you, then this could be your great ideal.

I want to focus now on this community aspect, the part of the community interest company, and you've got to be really clear of who your community is. It could be broad, the entire population of the United Kingdom, for example, it could be more focused like young, unemployed people in Leicester, carers in your local borough, or creative professionals across the United Kingdom.

And it's actually part of the incorporation procedure that you define that community clearly for the regulator. Whatever group you serve, they need to be clearly defined. CICs are built for community, not for the people running them, and that's a real important part of the process. It's also why groups of volunteers come together to create CICs, even without outside help.

That drive comes from within the community, again, broad or more focused. Now part of the incorporation procedure - the test, if you want to call it that, is the community interest test. And the tests asks, would a reasonable person believe that your business exists to benefit the community? And when you apply a set up a CIC, you have to provide a short community interest statement which explains what your business aims to do, who's going to benefit, and how it’s all going to work in practice?

One of the stumbling blocks in most applications that I've seen is that it's not clearly articulated at the outset. The regulator will check that your goals and actions match your claims, and if you pass the test, you're halfway there. But if your idea is just a traditional business with a little bit of a social spin, that might not be enough and your application can be rejected.

Now, having done that, you then got to decide the type of CIC you want - a structure. It’s either limited by shares or limited by guarantee. Let me break these down. Now, a CIC limited by shares is there if you want to attract external investors who provide those funds, but they want a financial reward by, say, typically by dividends.

You can issue shares just like a regular company, and you pay a limited dividend to shareholders. Typically, there's a dividend cap of 35%. That means people can support your mission and get a financial return. On the flip side, a CIC limited by guarantee - there aren't any conventional shareholders. The guarantee of the founders, if you want, is limited typically to a pound, and it's usually made up of members who guarantee a small amount if that eventuality happens, that the company has to be wound up.

And this is very common for not-for-profit models. Either way, you are still a company separate from the people who run it and responsible for its own finances, and the Companies Act will be coming into place for a CIC. Now, the big one is what's called the asset lock. Now, this, in my opinion, is one of the big differentiators between a CIC and what I call a conventional private company.

This is a legal promise that your assets that you've got within your organisation will only be used to benefit your community. You can't sell off the business and keep the profits. You can transfer the assets that you've got or sell the assets to somebody else, but it's got to be at market value. If your CIC decides to be no more,

then those assets typically are transferred to another comparable CIC or charity, and that's reflected within the articles of the CIC. What does it matter? Well, it gives the reassurance to funders, partners, and the public that you're not in it just for personal gain, but the assets and resources, the funding you've received, is going for a particularly defined purpose.

Now, a big question I hear quite often is, should I set up a CIC or should it indeed be a charity? Now the trade off has followed. A CIC in my experience is quicker and easier to set up than a charity. On average, CICs that we set up for clients will take from the initial application being completed to submission, anything from between five to 10 days to turn around. If it's a charity,

my experience has been that it can take several weeks, normally several months. And it's not unheard of; I’ve come across cases that it could take up to nine months to a year to get a charity incorporated. A CIC, you get more control. You run the business, you make those key decisions, you get paid for your work.

But in a charity it’s the trustees who aren't the people who run the organization, who work unpaid. They can't benefit directly from the charity's income without strict approval. And the flexibility can make the CIC a better fit for founders who want to stay closely involved. Now remember, a CIC is not a charity.

That means there'll be some grants or tax breaks that you can't access, like Gift Aid that a charity may do. Remember, you can convert a CIC to a charity later on down the line, and that's something that should feature in your planning. Now, some organisations use both, so charity is not unusual for it to have a separate CIC, which it effectively

owns, if you want to use that term very loosely, as it is trading arm to generate the income. Let me recap. A social enterprise combines both business and social goals. CICs are a legal structure that are there to support that objective. When you set one up, you need a clear community purpose. You've got to satisfy the community interest test.

You make a decision about the shares or guarantee type company. You've got to think about the asset lock. If you are a CIC, by the way, already established and you haven't got that asset lock well-defined, who the beneficiary organisation is, then contact us and we've made it our course as such to actually change that for CICs.

CICs offer more control than charities, but fewer tax breaks. Now it's not for everybody, but it’s for the right people with the right objective, the right mission. Now, I hope this episode has given you a clearer picture of what a social enterprise and CIC is, and if you've got questions you are thinking of setting up a CIC yourself, check out the show notes. There’s some links to help get you started.

And if you're ready to have that chat that's spark a purpose into a thriving, sustainable business, let's chat. If you found this useful, which I hope you have done, share it with those you feel will get benefit from that. Until next time, keep the passion burning and remember, plan it, do it and profit.