Community Interest Companies: What, Why, and When
Community Interest Companies, or CICs, are designed for businesses that want to make a difference while still being commercially sustainable. In this episode of the I Hate Numbers podcast, we explain what a CIC is, why it exists, and when it makes sense to form one.
We cover the key differences between CICs and charities, the rules you must follow, and how profits are managed. Whether you are starting a social enterprise or transitioning from a limited company, this episode gives you a clear understanding of how to use a CIC structure to do good and stay financially viable.
Main Topics & Discussion
What Is a Community Interest Company?
A Community Interest Company is a special type of limited company created for social enterprises that want to use their profits and assets for public good. It combines commercial flexibility with a social mission, allowing businesses to operate with purpose while remaining financially independent.
Why Choose a CIC?
Unlike charities, CICs can trade freely, pay staff, and make a profit, but their assets and surplus must primarily benefit the community. The structure gives credibility to organisations that want to attract funding or contracts while showing a clear commitment to social impact.
Many founders choose a CIC when they want to balance doing good with maintaining control and the ability to generate income.
How CICs Differ from Charities
Charities are regulated by the Charity Commission, while CICs are overseen by the CIC Regulator. The main distinction lies in flexibility. CICs can pay directors and distribute limited dividends, whereas charities face tighter restrictions. CICs also have simpler reporting and governance requirements compared to registered charities.
Legal Requirements and Oversight
Every CIC must submit an annual community interest report, explaining how its activities benefit the community. It must also file accounts with Companies House and remain transparent about how profits are used. The regulator can reject or question applications if a business’s objectives do not clearly serve the public interest.
When to Register as a CIC
Registering as a CIC makes sense when your business has a clear social or community purpose but still operates commercially. It is ideal for projects that generate revenue while tackling social or environmental challenges. If your main focus is profit for private shareholders, a traditional limited company may be a better fit.
Funding Opportunities for CICs
CICs can access funding from ethical investors, social impact funds, and grants that are unavailable to standard limited companies. This makes them attractive to entrepreneurs who want to create measurable change while sustaining long-term growth.
Common Pitfalls to Avoid
Running a CIC comes with responsibilities. Failing to submit community reports, misusing profits, or not keeping accurate records can lead to penalties or deregistration. Always keep clear documentation of decisions and spending to remain compliant and maintain public trust.
Final Thoughts
Community Interest Companies offer a balanced way to combine purpose and profit. They provide the freedom to operate like a business while committing to social good. Understanding when and how to form one helps you stay compliant and credible. A well-managed CIC not only supports your mission but strengthens your long-term financial sustainability.
Episode Timecodes
- [00:00:00] – Introduction: What is a CIC?
- [00:01:04] – Why CICs exist and their social purpose
- [00:02:30] – CICs versus charities
- [00:04:00] – Legal requirements and compliance
- [00:05:42] – When to register as a CIC
- [00:07:15] – Funding and opportunities
- [00:08:45] – Common pitfalls and compliance
- [00:09:30] – Final thoughts and next steps
Host & Show Info
Host Name: Mahmood Reza
About the Host: Mahmood is an accountant, business finance coach, and founder of I Hate Numbers. With over three decades of experience helping businesses grow responsibly, he simplifies finance and tax so you can focus on impact and profit.
Podcast Website:https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/🎧 Listen & Subscribe to I Hate Numbers
Learn how to build a sustainable, community-focused business model. Listen on Apple Podcasts, share this episode, and subscribe for more weekly insights. Plan it. Do it. Profit.
Additional Links
Transcript
Hello and welcome to another episode of I Hate Numbers. In this week's episode, I'm going to follow on from last week's episode on Social Enterprises. Please do check it out. I'm going to be looking at a specific business model, blending purpose with profits. Let me ask you a question. If you could build a business, run a business that changes lives, builds communities, and still brings in revenue,
::what's the thought process? Sounds good, doesn't it? That's the model we're looking at today - a community interest company or CIC for short. In this episode, I'm going to explore what a CIC actually involves, the community interest test, the different types of CICs, and there are two types, by the way, as a bit of a spoter alert, the asset lock and the difference between a CIC and a charity.
::Let's crack on.
::Now as an overview, a social enterprise is a business with a good heart. It's a business that exists to solve problems, whether they're social, environmental, community-based, or all of them together while still making money. And by money I mean making profit. It's that sweet spot between a charity and the corporate world.
::Now two well-known examples of social enterprises are the Eden Project and the Big Issue. Those aren't just feel good names, they're fully operational businesses, creating jobs, making revenue, and solving real world issues. Now, how do CICs fit into this picture? Great question. Now the Community Interest Company by the way, there's a bit of background, was introduced in the UK in 2005.
::So, in 2025, that's 20 years they've been going. It's one of the more popular and growing legal structures for social enterprises. It's a hybrid between a traditional limited company by shares and a charity. Now there are 3 million limited companies approximately in the United Kingdom. CICs, albeit they make a small size of that, they're growing.
::Why are they so popular? Why are they growing in demand? Well, because they offer flexibility and credibility. Whether that's a small local food bank or a nationwide training provider, CICs operate across all sectors and all corners of the United Kingdom. The key bit is that a CIC is a business, but its main purpose is to benefit the community.
::It can make a profit and it's encouraged to do so. It can employ staff. It can attract investment, be subject to the normal tax regulations like Corporation Tax and VAT. But here's the twist, the profit must be used primarily to serve a social purpose. So, if you're looking to make an impact, make a living doing it,
::this could be right up your street. Now let's focus initially on the community part of the Community Interest Company. Now you have to be crystal clear as to who your community is. That could be broad-brush like the entire population. It could be more focused like helping young, unemployed people in Leicester, carers in your local borough, creating professionals across the United Kingdom.
::Whichever group you serve, they need to be clearly defined and that has to be also reflected by the way, when you actually incorporate and form a CIC. Cough, cough. If you need any help on that, contact us at I Hate Numbers. Now, CICs are built for the community, not just the people running them and that's of primary importance. And that's also why groups of volunteers often come together to create CICs,
::even with external help. The drive comes from within the community. Now, let's talk about something you must pass in order to become a CIC. And when I say pass, whether the regulator approves your application or not, and that's the community interest test. Now, the test at its core asks, would a reasonable person believe that your business exists to benefit the community?
::So when you apply to set up your CIC, you'll have to provide a short community interest statement. This explains what your business aims to do, who will benefit, how they will benefit and how it all works in practice. The regulator will check your goals and objectives, match your claims, and if you pass that test, welcome in.
::But your idea is just a traditional business with a business spin. But if your idea is just a traditional business with a small aspect that soups on of a social spin, that may not be enough to get through. Now, let's say you passed that test. Now you've got to choose the company structure and there are two types of CIC to choose from.
::There's a limited by shares and limited by guarantee. Let's break those down. Now, a CIC limited by shares works well if you want to attract investors. You can issue shares just like a regular company and you can actually pay a limited dividend to those investors, to those shareholders. That means people can support your mission and get a financial return.
::There is a cap on how much they can take by the way, but a dividend distribution can still be made. On the flip side, a limited guarantee CIC has no shareholders. It's usually made up of the members who guarantee a small amount if the company winds up. Typically, it's a pound. This type is very common for what are called not-for-profit models.
::Either way, you are still a registered company, separate from the people who run it, so you still have that limited liability framework and you have responsibility for your own finances. Now, here's a biggie, something called the asset lock. Now, this is a feature that really distinguishes and separates a CIC from a regular company.
::There’s a legal promise that your assets would only be ever used to benefit your community. You cannot sell the business and keep the profits. You can transfer the assets. You can sell the assets, but they've got to be done at market value or to another asset-locked body like a another CIC, or a charity. If your CIC ever closes down, if you decide you want to move on, do something else,
::And then you want to wind up the CIC, any residual money or assets must go to a similar organisation. Well, why does this matter? Well, because it reassures funders, partners and supporters and the public, you're not just in it for personal gain. And as a small heads up, by the way folks, when you do incorporate and you form a CIC, traditionally, we always ask clients to propose a named asset-locked organisation.
::Now, should you set up a CIC or a charity? - A very common question. Now, a CIC is slightly quicker to set up than a charity. Incorporation can happen in a matter of days compared to several months to set up and incorporate a charity. You have more control when you're a CIC and as a CIC director, you can actually run the business, make key decisions, get paid for your work.
::In a charity, there's a separation that's more formal. Trustees typically who are responsible for the governance, strategic direction of the organisation, work unpaid often, cannot benefit directly from the charity's income without strict approval. Now that flexibility makes a CIC a better fit for founders who want to stay closely involved.
::Now remember, CICs are not charities. That's a common misconception. That means you may not qualify for certain grants from trusts and foundations. You may not get the tax breaks like Gift Aid that charities get, rate relief… and while you can convert a CIC to a charity later, it's a process you'll need to plan carefully.
::It's not uncommon for organisations who are not quite sure what they want to do is to go to a CIC and then at some future point, depending on what's happening, convert to a charity. Now some organisations will use a blend. A charity can set up a CIC as a trading arm to generate income, their income wired over
::back to the charity itself. And as we said earlier, a CIC can convert to a charity once it's grown up, it's got its proof of concept. So, let's recap. Social enterprises combine business and social goals and objectives. CICs are a legal structure built to support that. You need a clear-stated community purpose.
::You have to pass the community interest test. You have to make a choice whether you should be limited by shares or guarantee. The asset lock is there to protect your mission. CICs offer more control than charities, but fewer tax perks. Now, if you are passionate about solving problems in your community and you want to earn a living doing it, then setting up a CIC could be a smart step.
::It's not for everyone, but for the right people with the right mission, it’s gold dust. Now folks, I hope this episode has given you a clear review of what a social enterprise is, but more specifically, CICs are all about. If you've got questions, you think about setting up a CIC yourself, you set up a CIC, you need some guidance, some help, some support with systems, advice, check out the note, give us a call. And if you're ready to turn that spark of purpose into a thriving, sustainable business, let's chat.
::Don't forget to subscribe to the show wherever you listen to your podcast. Drop us a review. We find that really helpful and helps more people find us. Till next time, keep that passion burning and remember plan it, do it and profit.
