A Community Interest Company (CIC) Pros and Cons; a simplified guide.

A Community Interest Company (CIC) is a type of limited company set up to help a community or serve a social purpose, rather than to make a profit for shareholders.

Other ways to set up a social enterprise include charities, trusts, standard companies, unincorporated associations, or a Charitable Incorporated Organisation (CIO). This guide explains the main advantages and disadvantages of choosing a CIC.

✅ Advantages of a Community Interest Company

1. Clear Social Purpose
CICs are legally required to work for a social or community goal. Their structure makes it clear that profits must go toward helping the community, not individuals. This is enforced by something called an asset lock, and they’re monitored by the CIC Regulator, which adds trust.

2. Better Access to Certain Funding
Some donors, grants, and finance providers prefer to fund CICs or charities, as they can trust their money will be used properly. A CIC might qualify for funding that a regular company would not.

3. Limited Liability Protection
Like other limited companies, CICs protect their owners from being personally liable for the company’s debts. This is a key benefit for anyone setting up or running the business.

4. Flexible Business Structure
CICs can be structured in different ways:

• Limited by shares (can issue shares and pay dividends, within limits)
• Limited by guarantee (common for not-for-profits)
• Or even as a public company

This flexibility allows you to choose what works best for your organisation.

5. Ongoing Purpose
CICs have their own legal identity. They can keep going even if directors or owners change. If the company closes, any remaining assets must still be used for social good — passed to another CIC or charity.

6. Quicker to Set Up than a Charity
Starting a CIC is faster than setting up a registered charity. You submit one form to Companies House, which also gets checked by the CIC Regulator. Setting up a charity takes longer and involves separate approvals.

7. Lighter Ongoing Regulation
CICs are less strictly regulated than charities. They must send in an annual Community Interest Report, but charities usually have more complex reporting rules.

8. Can Combine Pay with Control
Founders of a CIC can stay in charge and get paid for their work, which isn’t always possible in charities. This can also help attract skilled people to help run the business.

9. Broader Social Goals Allowed
The social aims of a CIC don’t have to meet the strict “public benefit” rules required of charities. This means a wider range of causes can qualify, making CICs more flexible in what they support.

❌ Disadvantages of a Community Interest Company

1. More Setup Steps
To start a CIC, you must:

• Register at Companies House
• Submit Form CIC36, signed by all directors
• Pay a fee
  This process takes more effort than starting an informal group.

2. Ongoing Compliance Duties
CICs must:

• File accounts each year
• Maintain company records
• Submit annual returns (confirmation statements)
  This can be burdensome if your social project is small or part-time.

3. No Charity Tax Benefits
Even if a CIC’s goals are similar to a charity’s, it won’t get the same tax breaks. That can make fundraising harder compared to registered charities.

4. Less Access to Some Funding
Some grants or funds are only available to registered charities. CICs might miss out on this type of financial support.

5. Limits on Profits (Dividends)
Only CICs with shares can pay dividends, and even then only up to 35% of distributable profits each year. This rule exists to keep the focus on social good, but it might put off potential investors.

6. Asset Restrictions (Asset Lock)
A CIC must keep its assets for community benefit. It can’t sell or give away assets cheaply unless they go to another CIC or charity. This can be limiting if your business has a strong commercial side.

7. Extra Paperwork for Regulator
CICs must submit a Community Interest Company Report (Form CIC34) every year — and it currently must be done on paper, not online.

8. CIC Regulator Oversight
The CIC Regulator can investigate if they think the company isn’t serving its community or is breaking the rules. This adds another layer of accountability.

Final Thoughts

CICs are a great option if you want to run a business that helps people, with some flexibility and the ability to earn money or pay staff. However, they come with some restrictions and paperwork that won’t suit everyone. It’s important to weigh these pros and cons carefully before choosing this structure.