Limited CIC Company – A Practical Guide for Social Enterprises
A Community Interest Company (CIC) is a type of limited company specifically designed for businesses that want to benefit the community rather than maximise private profit. It is often described as a hybrid between a charity and a commercial company.
What is a Limited CIC Company?
A CIC:
- Is registered with Companies House and HMRC, just like a normal company
- Operates as a trading business
- Exists primarily for social or community benefit rather than shareholder profit
It is commonly used for social enterprises, where income is generated through business activity but used to support a wider purpose.
Key Features
1. Community Purpose First
A CIC must pass a community interest test, meaning a reasonable person must see that the business benefits the community.
This could include:
- Supporting vulnerable groups
- Providing education or mentoring
- Running community facilities or services
2. Asset Lock
Every CIC has a legal asset lock, which:
- Prevents assets being used for private gain
- Ensures profits are reinvested or used for community benefit
- Cannot be removed once set up
3. Profit Use and Dividends
A CIC can make profits, but:
- Most profits must be reinvested into the business or community
- If shares exist, dividends are capped (currently up to 35% of retained profits)
4. Annual CIC Report
Alongside accounts, a CIC must file a public report explaining:
- What the business has done
- How it benefited the community
- Payments to directors or shareholders
- Stakeholder engagement
This adds transparency and accountability.
5. Regulated Status
A CIC must:
- Submit a Community Interest Statement when formed
- Be approved by the CIC Regulator
- Continue to meet the community test each year
Types of CIC
| Type | Description |
|---|---|
| Limited by Shares | Can pay capped dividends to shareholders |
| Limited by Guarantee | No shares, profits fully reinvested |
Most CICs are limited by guarantee, particularly for non-profit style organisations.
How a CIC Operates
A CIC can:
- Trade and generate income
- Employ staff and pay directors
- Enter contracts and own assets
- Apply for funding or grants
It operates like a business, but with restrictions on how money is used.
Advantages
- Combines business flexibility with social purpose
- Builds trust and credibility with the public
- Can attract grants, funding, and partnerships
- Allows directors to be paid (unlike many charities)
Disadvantages
- Profit extraction is restricted
- No automatic charity tax reliefs
- Additional reporting and regulation
- Cannot easily convert back to a standard company once set up
CIC vs Charity
| Area | CIC | Charity |
|---|---|---|
| Purpose | Community benefit | Charitable purpose |
| Tax | Pays Corporation Tax | Tax reliefs available |
| Flexibility | High | More restricted |
| Profit | Allowed (restricted use) | Not distributed |
A CIC is often better suited to modern service-based businesses with a social mission, where income generation is key.
When is a CIC Right?
A CIC works well if:
- You want to run a business with a clear purpose
- You are not focused on maximising personal income
- You want to demonstrate social impact
- You may seek grants or community funding
How GMS Business Accountants Can Help
- Advise whether a CIC, LTD, or Charity is most suitable
- Set up your CIC correctly (shares vs guarantee)
- Ensure compliance with CIC regulations and reporting
- Support with tax, payroll, and ongoing growth
Written by Graham Wesson
Director – GMS Business Accountants
Specialist in SME tax and business advisory
