About this episode

In this episode, we explain what a Community Interest Company is and how CICs can support social enterprises that want to make money while creating positive community impact. A CIC can be a useful structure for people who want to run a business with a clear social purpose, without becoming a charity straight away.

We also look at the key features of Community Interest Companies, including the community interest test, asset lock, different CIC structures, and how CICs compare with charities. If you are planning a values-led organisation, this episode will help you understand the main options before taking the next step.

What is a social enterprise?

A social enterprise is more than a business with a social conscience. It is a business that combines commercial activity with social goals. The aim is to generate income, remain sustainable, and use that income to support a wider mission.

Examples mentioned in the episode include the Eden Project and The Big Issue. These show that social enterprises are not just small community projects. They can operate at scale, generate income, and still place social impact at the heart of their work.

For small business finance UK, this matters because a social enterprise still needs good financial control. It must understand income, costs, profit, and reinvestment if it wants to survive and make a lasting difference.

What is a Community Interest Company?

A Community Interest Company is a company created to benefit the community. CICs were introduced in the UK in 2005 and have grown in popularity since then.

A CIC operates as a business, but it has features that make it different from a traditional private company. Its primary purpose is not simply to reward shareholders. Instead, the underlying aim is to benefit the community and reinvest funds into products, services, or activities that support that purpose.

This makes CICs a strong model for social enterprises that want a business structure with a clear public benefit. They can also attract investment, particularly where investors want both a financial return and a social outcome.

Why CICs matter

CICs matter because they give social entrepreneurs another route. Not every organisation that benefits the community will qualify as a charity, and not every founder wants the restrictions that come with charitable status.

A CIC can offer more flexibility than a charity while still protecting the social purpose of the organisation. It allows people to run an organisation, earn income, take strategic control, and focus on community benefit.

This is important for business planning because the structure you choose affects control, tax, funding, governance, and future growth. Good decisions at the start can reduce confusion later.

Key features of a Community Interest Company

The community interest test

The main purpose of a CIC is to provide community benefit rather than private benefit. This principle is reflected in the community interest test.

A company satisfies the test if a reasonable person might consider that its activities are carried on for community benefit. When applying to register as a CIC, you must explain how your organisation will benefit the community and who will benefit from its activities.

Defining your community

A CIC must be clear about the community it intends to serve. That community could be broad, such as the general public, or more specific, such as a local area, NHS workers, or young unemployed people.

The important point is that the community should be wider than just the members of the CIC. The organisation should exist to create benefit beyond the people who own, run, or work in it.

CIC limited by shares or guarantee

A CIC can be limited by shares or limited by guarantee. A company limited by shares can have shareholders and may distribute dividends, although CICs face restrictions on how much can be paid to private investors.

A company limited by guarantee is more common in the not-for-profit sector. It has guarantors rather than shareholders, and profits are usually reinvested back into the company. The right choice depends on how the organisation is funded, governed, and expected to grow.

The asset lock

The asset lock is one of the most important features of a CIC. It is designed to make sure that assets and profits are used for community benefit.

A CIC cannot usually transfer assets below full market value unless the transfer is to another asset-locked body or is clearly for community benefit. If the CIC is dissolved, any surplus assets must be transferred to another asset-locked body after liabilities are settled.

This gives the CIC structure long-term protection, but it also means founders must understand the consequences before setting one up.

CICs and charities

A CIC is not a charity, and a charity is not a CIC. They may both serve the public or community, but they are governed by different rules and expectations.

One important difference is control and payment. In a charity, it can be difficult to retain strategic control and be paid for running the organisation. With a CIC, you can be part of the governing body, lead the organisation, and be paid for the work you do.

A CIC can also be set up more quickly than a charity. The episode explains that a charity may take three to six months to create and incorporate, while a CIC can normally be formed more quickly.

Practical steps before setting up a CIC

• Be clear about the social or community purpose.
• Define who the community is and how they will benefit.
• Decide whether the CIC should be limited by shares or guarantee.
• Understand the community interest test before applying.
• Consider the long-term impact of the asset lock.
• Compare the CIC route with charity status before deciding.
• Think about funding, investment, tax, governance, and future growth.

If your organisation needs support with financial control, bookkeeping, or planning, our Xero accounting support may help you build stronger systems around your numbers.

Related episodes

• Community Interest Companies and Tax
• Understanding Your Financial Statements
• Build Your Cash Flow with a Spreadsheet

Key takeaway

A Community Interest Company can be a powerful structure for social enterprise. It allows an organisation to trade, generate income, attract investment, and pursue community benefit without becoming a charity immediately.

However, the structure needs thought. The community interest test, asset lock, and choice between shares or guarantee all matter. Before moving ahead, we should be clear about the purpose, the community served, and the financial model needed to make the organisation sustainable.

Episode Timecodes

• 00:00 – Introduction to Community Interest Companies and social enterprise
• 01:10 – What social enterprise means and why it matters
• 03:00 – What a CIC is and why CICs were introduced
• 04:15 – Defining the community a CIC serves
• 05:20 – The community interest test
• 06:45 – CICs limited by shares or guarantee
• 08:00 – The asset lock and long-term consequences
• 10:00 – CICs compared with charities
• 11:30 – Final thoughts before choosing a structure

About the Podcast

The I Hate Numbers podcast helps business owners understand accounting, tax, finance, profit, cash flow, and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.

You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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A community interest company, or CIC for short, fills the gap between charitable and traditional for-profit businesses. It's designed for those who have an interest in solving social problems, giving you more opportunities to make money from your work. As a model of social enterprise, it takes some beating.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks. My name is Mahmoud. I'm an accountant for over 26 years that's been helping businesses disentangle, unravel the complexity of finances, improve their money, attitude and mindset, make more money in their business, save time, and save tax. What's not to love about that? Now, in this week's episode of I Hate Numbers, I'm going to be looking at community interest companies as a model for social enterprise, and particularly we're going to drill down, to have a look at what is meant by social enterprise,

what are community interest companies, and some of the aspects of community interest companies, such as a community interest test, the type of CIC community interest company you can have, what an asset lock is, and also the contrast between a CIC and a charitable organisation. Let's crack on with the podcast.

Now, social enterprises are more than just companies that have a social conscience. They are businesses with a mix of businesses and social goals. We see two big examples in our lives in terms of the Eden Project and in terms of the Big Issue. Those are classic models of social enterprise. Now, social enterprises make impact while also being financially sustainable, Private businesses, on the other hand, that are owned by their shareholders have different objectives.

Making profits and delivering social impact in an equal measure is a stretch. Now, social enterprises provide income-generation opportunities that meet the basic needs of people who live in poverty. They are sustainable and earned income from what they sell is reinvested in their mission. Social enterprises however, do not depend on philantropy.

They can sustain themselves over the long term. Their models can be expanded, or even de-replicated to other communities to generate more impact. Social enterprises work to improve and to maximise financial, environmental, and well-being. They are more and more these days set up CICs, or perhaps, a different type of business structure designed for this purpose.

Social enterprises can be created by anyone who has a desire and a knowledge necessary to make changes happen. Let's talk about CICs. Now, these were first established back in the UK in 2005. In relative size, they are a small segment of the limited companies that are formed in the UK. There are approximately 2.8 million limited companies in the United Kingdom. CICs account for about 16,000

of those, but they are certainly increasing in popularity and take-up. Now, since they have grown a number, we note that the diversity of the activities they undertake expands. The legal structure supports a wide range of activities from very small scale projects to multimillion-pound health services covering all industry sectors and are in every area

of the UK. Now, CICs were established to deliver community benefits. They do operate as businesses; however, they are different and they do differ compared to private companies. They can provide investment returns to investors, but the primary goal of a CIC as a model of social enterprise is to reinvest those funds to provide more products or services, not just to reward shareholders like private companies.

The primary, the underlying purpose and ethos of a CIC is to benefit the community rather than private profit. I'd like to drill down a little bit more now in terms of what's meant by this idea of community in a community interest company. Now, the essential feature of a CIC is that its activities are carried on for the benefit of the community.

It's important that you've got a clear picture of who you intend to serve. A community for CIC purposes can either be the entire population or it can be a definable group, a definable segment within your local geographical area. The community you serve though will be wider than just the members of your CIC.

Now, because of the public interest in local-based organisations and initiatives, it is not that uncommon for groups of volunteers to create their own CICs without any assistance whatsoever from outside sources. Now, most cases, your community should be easy to define. For example, it could be the residents of I Hate Numbers town, NHS workers,

or the young unemployed, to give three examples. Now, having looked at the idea of what is social enterprise, having looked at what CICs are, and the idea behind community, I'm now going to explore and have a look at what's called the community interest test and the main purpose of a CIC is to provide community benefits rather than to benefit the individuals who own, run, or work in them.

Now, this core principle is set out in the community interest test. Now, a company satisfies the community interest test if a reasonable person might consider that its activities are carried on for community benefit. Now, if a CIC is the way you wish to go forward and you apply to be registered as a CIC, you must provide in your application form to the regulator

evidence that you will satisfy the community interest test. Now, to help the regulator decide whether you will satisfy that test, you have to deliver and write up a community interest statement. Now, this test focuses on your primary and underlying motivation, and how your CIC will benefit your community.

It will be looking at the purposes set up by your company, the range of activities you'll be engaging in,and who will benefit from those actions. Let's recap where we are so far. We've talked about social enterprise, what that is. We've talked about the CIC model. We've talked about the idea of defining community and the important community interest test that must be completed on application to form a CIC.

Another consideration that you need to think about is what type of CIC can you be. Now, what do I mean by that? A company, which is fundamentally what a CIC is, can be one of two types. Your CIC can either be limited by shares or it can be limited by guarantee. Now, limited by shares companies typically are found for businesses that are there as profit as their primary objective.

Now, that means that the company is legally separate from the people who run it. The finances are separate from your personal ones. You have shareholders and any post-tax, any after-tax profits can be retained by you and distributed accordingly by what we call dividends. Now, a company limited by guarantee,

on the other hand, again, it is a company. It's usually found in the not-for-profit sector, and with a private company limited by shares, it is also legally separate from the people who run it. Also, the finances are different to your personal ones. The differences are though, it has guarantors with a guaranteed amount and profits that are generated are reinvested back into the company.

A CIC is a company, but it does have distinctive features compared to a normal, limited by guarantee company, or a company limited by shares. A CIC is fundamentally a hybrid model, a halfway house between a charity and a private company. There is a feature of that that is a vital feature and is very particular and peculiar to CICs, and that is called an asset lock.

Now, you've got to understand that the asset lock is a real vital feature of a CIC and it's important that you understand its importance before you set up a CIC because it has permanent long-term consequences. The asset lock is designed to ensure that your assets and profits are fully used for community benefit.

The main constituent elements of the asset lock are as follows. Your CIC must not transfer the assets below the full market value. It can, however, do that if it goes to another asset-locked body, or it's for community benefit. A CIC limited by shares is restricted to how much dividend can be paid to private investors.

And the CIC limited by shares, by the way, is a great way to attract commercial investment, to attract those people who have money to invest, but also want to achieve some social good, and they can be rewarded by dividends. If your CIC no longer exists, if it's dissolved, any surplus assets must be transferred to another asset-locked body

once all the liabilities of the CIC have been met. An asset-locked body, by the way, is typically an organisation that has the same outlook, the same objective, the same community purpose as you do. It can be a charity or it can be another CIC. So, let's recap what we've covered. We've talked about social enterprise. We've talked about what a CIC is.

We've talked about the different types of CIC. We've talked about the community interest test and the idea of what community represents. What I want to round up on though is this decision that you might make between forming a charity or forming a CIC. Now, a few heads-ups here to take into account. It's far quicker to create and form a CIC compared to a charity.

On average, a charity can take anything between three to six months to create and incorporate and CIC can be done in a much quicker time scale. Another major difference between a CIC and a charity is that in a charity, if you wish to retain strategic direction, strategic control, and also work for the organisation, it's very difficult to get paid for it, and charity regulations would normally prohibit that.

However, if you create a CIC, you can be part of the governing body. You can take charge in the strategic direction, and you can get paid for your work, for running your organisation, your CIC. It's important to stress, a CIC is not a charity, and a charity is not a CIC. Not everything that benefits the community is legally seen as charitable, and you cannot automatically set up a charity even if your organisation benefits the community.

There are different expectations, different regulations that govern those two types of entity. Now, if you wish to set out a charity in the future, initially create a CIC, and at some point in the future you convert that to a charitable organisation. It's normally a route that we recommend to clients who are very keen to get their organisation going,

perhaps establish some sense of purpose, get funding, get a proof of concept, and in the long term, look to create a charity. It's worth noting that a CIC can be converted into a charitable company, and also that a charity can have a CIC as a separate trading subsidiary. Let's round up folks. Now, in conclusion, the world is full of opportunities.

Businesses can be started from anywhere and any time. It's a good idea for you to get as much information on the business type you want before taking steps in that direction. Now hopefully, I've piqued your interest, and I'd love it if you subscribe and listen for more informative podcasts. For more business, and finance news, and advice, and tips, don't forget, subscribe.

Tune in to my weekly podcast. Listen to our weekly vlogs and blogs. Check out the show notes for some useful links. And until next week, folks, have a brilliant week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode.

We look forward to you joining us next week for another I Hate Numbers episode.