If you're building something that serves a community rather than chasing unlimited private profit, the community interest company cic might be the legal structure you need. This guide walks you through everything from the community interest test to the asset lock, formation steps, ongoing compliance and what happens when things change.
Key Takeaways
A community interest company is a type of limited company in the UK designed for social enterprises that want to combine trading with a defined community purpose.
CICs are limited companies with a focus on community benefit, regulated by both Companies House and the CIC Regulator, and must pass a community interest test before registration is confirmed.
Every CIC has a compulsory asset lock to protect community assets, meaning the company's assets and surplus income must serve the community rather than being freely distributed to private shareholders.
CICs can be limited by shares or limited by guarantee, and those with shares can pay dividends capped at 35% of profits while reinvesting at least 65% into community purposes.
This guide covers the community interest statement, company formation steps, the annual community interest report, dividend cap rules, and how to stay compliant in 2026.
What Is a Community Interest Company (CIC)?
A community interest company is a specific type of limited company under UK company law, created to benefit a defined community rather than generate profits solely for private gain. CICs were introduced in 2005 under the Companies (Audit, Investigations and Community Enterprise) Act 2004, giving social enterprise founders a unique business structure that sits between a charity and a normal limited company.
As of the end of the 2024-25 financial year, there were 37,081 CICs on the public register across the UK, with a record 8,376 new incorporations approved that year alone. CICs are active across sectors including mental health services, additional needs education, sports, social housing for the homeless, and community food projects. The interest company model allows founders to engage in commercial activities for community benefit while maintaining a credible social mission.
CICs provide limited liability protection to their directors and members, meaning personal liability for the company's debts is limited in the same way as any other company limited by shares or guarantee. The CIC brand guarantees a commitment to a communal cause, and every CIC must reinvest most of its surplus into its stated community purposes. CICs can trade freely and pay director salaries, making them a practical choice for organisations that want to generate profits and direct them toward social objectives.
CIC vs Charity vs Ordinary Limited Company
Choosing between a CIC, a charity and a standard limited company is one of the first decisions you'll face. Each legal structure comes with different rules around regulation, profit distribution, tax and governance, so understanding the trade-offs matters before you commit.
When comparing CICs and charities, the differences start with regulation. Charities are strictly regulated by the Charity Commission (in England and Wales), which requires them to demonstrate public benefit and operate exclusively for charitable purposes. CICs answer to the CIC Regulator and Companies House, a lighter-touch arrangement that focuses on whether the company satisfies the community interest test rather than the stricter public benefit requirements of charity law. Charities must reinvest all income into charitable objectives, whereas CICs can distribute up to 35% of profits as dividends to shareholders if structured as a company limited by shares. CICs are not eligible for tax relief like charities. They pay Corporation Tax on profits and cannot claim gift aid, which means donors to a CIC do not benefit from the same personal tax advantages as when giving to a registered charity. However, CICs offer social enterprises access to both commercial and grant funding, and they face fewer constraints on trading and paying directors.
Compared with ordinary limited companies and private limited companies, the community interest company structure adds meaningful constraints in exchange for credibility. Ordinary limited companies register only at Companies House and can distribute all remaining profits freely to shareholders. A CIC, by contrast, is bound by the asset lock and dividend cap. On winding up, an ordinary company divides remaining assets among shareholders after creditors, while a CIC must send residual assets to a nominated asset locked body. CICs cannot distribute profits to members like ordinary companies. This middle ground gives CICs more operational flexibility than charities but stronger safeguards for community benefit than a standard private company.
The Legal Framework and Role of the CIC Regulator
The cic legislation that governs community interest companies consists primarily of the Companies (Audit, Investigations and Community Enterprise) Act 2004 and the community interest company regulations 2005 (as amended). These set out requirements for the community interest test, asset lock provisions, dividend and interest caps, permitted transfers, and conversion procedures.
CICs operate under dual regulation. They are incorporated at Companies House under standard company law, but must also satisfy additional oversight from the Office of the Regulator of Community Interest Companies, commonly known as the CIC Regulator. This regulator of community interest companies decides whether applications meet the community interest test, approves certain transfers of the company's assets for less than full market value, consents to structural changes, and has powers for investigating complaints where community benefit may be at risk.
The Regulator publishes detailed CIC online guidance, model constitutions and forms such as CIC36 (for new companies) and CIC34 (the annual community interest company report). These are available via the Companies House public register and GOV.UK. The Regulator's approach is generally light-touch, intervening primarily where the asset lock could be undermined or where a CIC is failing to deliver community benefit.
The Community Interest Test and Community Interest Statement
The community interest test is the central eligibility requirement for any company seeking cic status. A reasonable person must be able to conclude that the company's activities will benefit a section of the community rather than serving a narrow private interest. CICs are required to pass a community interest test before they can be registered, and the test remains relevant throughout the life of the company.
Prospective CICs submit a community interest statement on form CIC36 for new companies, or CIC37 for conversions. This statement describes the company's planned activities, its target community, its social objectives and its mission statement for how profits generated and assets will be applied for community benefit. The CIC Regulator uses this statement to assess whether the application meets the test.
Certain types of organisation cannot satisfy the community interest test. A political party or political campaigning organisation is generally excluded, as are entities that primarily serve the private interests of their own members. The test is about genuine, demonstrable community benefit beyond the company's internal stakeholders.
When drafting a strong community interest statement, use clear language and specific examples. Describe exactly what activities you will carry out, who your beneficiaries are, and how income generation links directly to community outcomes. Vague promises of broad benefit without concrete detail are the most common reason for delays or refusal.
Asset Lock, Asset-Locked Bodies and Dividend Cap
The asset lock is a compulsory legal safeguard in every community interest company. It restricts how the CIC's assets and surplus income can be used, ensuring they serve community purposes rather than being diverted to private individuals. CICs have a compulsory asset lock that cannot be removed. Once a company becomes a CIC, this protection is permanent, and it acts as a legal promise stating that CIC assets must benefit the community, not private individuals.
CICs must specify an asset locked body in their articles. An asset locked body is typically another CIC, a charity, a charitable incorporated organisation, or a registered society. If the CIC is wound up, any remaining assets after debts are settled must pass to this nominated body. Transfers of the company's assets for less than full market value require prior consent from the CIC Regulator, and any such transfers must be disclosed in the annual report.
Permitted transfers include sales at full market value, transfers to a nominated asset locked body, and transfers approved by the Regulator where they clearly serve community benefit. CICs must comply with the asset lock provisions at all times, and the Regulator monitors compliance through annual filings.
For CICs limited by shares, the dividend cap restricts what private shareholders can receive. CICs can pay dividends capped at 35% of profits in any financial year, and must reinvest at least 65% of remaining profits into community purposes. CICs have strict caps on the dividends and interest payments to shareholders, including performance-related interest on borrowings. These provisions sit alongside ordinary company law on distributions and share capital, ensuring that profits generated are primarily directed toward the CIC's stated purpose rather than extracted for private profit.
Types of CIC: Limited by Shares vs Limited by Guarantee
CICs can take two main forms under UK company law: a company limited by shares or a company limited by guarantee. Unincorporated associations and other legal entities that are not limited companies cannot be CICs.
A CIC limited by guarantee has no share capital, no shareholders and cannot pay dividends. Members guarantee a nominal sum (usually £1) toward the company's debts if it is wound up. This is the most common choice for community projects, membership bodies and organisations where members trade services or collaborate without seeking equity returns. It works well where founders want to focus entirely on community benefit without managing investor relationships.
A CIC limited by shares allows external investment and can pay dividends, subject to the dividend cap and asset lock. The CIC Regulator provides model articles designed specifically for share-limited CICs, distinguishing between Schedule 2 articles (dividends only to asset locked bodies) and Schedule 3 articles (dividends to private shareholders, subject to the cap). Note that a community interest plc is technically possible as a public company form, though the vast majority of CICs are private.
When choosing, consider whether your business plans require private investment, whether you might convert to charity status in future, and how you expect to fund activities over the next three to five years. CICs have access to funding opportunities for social enterprises, including social investment, grant funding and commercial revenue. Raising finance under the asset lock and dividend cap is entirely feasible, but founders should understand the constraints before committing.
How to Set Up a Community Interest Company (CIC)
Forming a community interest company mirrors ordinary company formation but includes extra CIC documentation and scrutiny by the CIC Regulator. The process is straightforward if you prepare the right paperwork and understand what the Regulator is looking for.
Step 1: Decide Your CIC’s Directors and Members
A community interest company must have at least one director and one member under company law. These can be the same person, but having two or three directors is usually more robust for governance, decision-making and credibility with funders.
Directors must be at least 16 years old and must not be disqualified from acting as a director. Beyond legal eligibility, choose people who are genuinely committed to the CIC's community interest purpose and bring relevant skills in management, finance or the sector you operate in.
Members act as owners (in a share company) or guarantors (in a guarantee company). Directors handle day-to-day management and are responsible for ensuring the company continues to satisfy the community interest test and meet its reporting duties.
Step 2: Choose a Name and Draft Your Community Interest Statement
Your CIC's name must comply with company name rules, be unique on the Companies House register, and for a private company must end with "Community Interest Company" or "CIC" (for example, "Greenfield Projects CIC"). A cic limited company can also use abbreviations. Check name availability using the Companies House online search tools and consider securing a matching domain name.
Prepare the community interest statement for form CIC36. This is where you describe your social objectives, main activities, intended beneficiaries and how assets and surplus income will be applied. Think of it as your mission statement with teeth. The CIC Regulator will use this statement to assess whether the company meets the community interest test, so be specific and concrete rather than aspirational and vague.
Step 3: Establish Your Constitution and Asset Lock
The memorandum of association is a simple document confirming the initial subscribers. When forming a CIC online, the memorandum is created automatically as part of the digital process.
The articles of association set out the CIC's rules, including its community interest objects, asset lock, director powers, member rights and any dividend and interest restrictions. The CIC Regulator publishes model constitutions for companies limited by shares and by guarantee, and most community interest companies adapt these to their needs rather than using standard Companies House model articles. The asset lock wording must appear in the articles and must normally identify a specific asset locked body to receive any remaining assets on winding up. These are articles designed specifically for the community interest company structure.
Step 4: Register CIC Online or by Post
Most new CICs are formed using the integrated CIC online service at Companies House, where founders complete company formation and CIC information in a single digital process. Applicants need a Companies House online account. A government gateway user id or existing government gateway user credentials cannot be reused for Companies House; dedicated company credentials must be set up separately.
The alternative is registering by post using form IN01, form CIC36 and physical copies of the CIC articles along with supporting documentation. Paper applications take longer to process.
As of 2026, the registration fee is £115 for online applications and £139 by post. Straightforward online applications are typically processed within two to five working days. These fees and timeframes are subject to change, so check GOV.UK before applying.
Step 5: First Actions After Incorporation
Once you receive your certificate of incorporation, register for Corporation Tax with HMRC within three months, open a business bank account in the CIC's name, and set up basic accounting and record-keeping systems.
Schedule your first board meeting to confirm director appointments, adopt internal policies and formally note the asset lock and community interest obligations. Diarise key annual deadlines: annual accounts filing, the annual community interest report (CIC34) and the confirmation statement for Companies House. Getting these systems in place from day one prevents compliance problems later.
Ongoing Compliance, Reporting and Governance
Once formed, community interest companies must meet standard company law duties plus specific CIC reporting obligations each year. This dual layer of compliance is the price of the credibility that cic status brings.
CICs must file annual accounts with Companies House in the prescribed format, pay Corporation Tax on any profits, and maintain statutory registers of directors, members and charges. CICs must also file an annual CIC report (form CIC34), which covers how the CIC has continued to meet its community interest objectives, what community benefit has been delivered, directors' remuneration, dividends paid, and any asset transfers for less than full consideration. CICs must confirm information with a yearly confirmation statement to Companies House, updating key company details and shareholding information. The annual confirmation statement fee is £34.
Annual CIC Report and Community Interest Test in Practice
The annual community interest report is the primary way the CIC Regulator, Companies House and the public can see how a community interest company continues to fulfil its community interest objectives each financial year. The community interest company report typically includes a description of activities, evidence of outcomes and impact, stakeholder consultations, and disclosure of remuneration and dividends.
Even dormant community interest companies must submit a CIC report and accounts, briefly explaining why trading has not yet commenced and how future community benefit is planned. Failure to file reports or adequately demonstrate community benefit can prompt regulatory action, including enforcement measures or, in serious cases, winding up the CIC. The annual report is not a formality. It is the Regulator's main tool for monitoring whether the company still deserves cic status.
Directors’ Duties, Pay and Stakeholder Engagement
Directors' core duties under company law include promoting the success of the company, exercising reasonable care and skill, and avoiding conflicts of interest. In a CIC, these duties interact directly with the community interest purpose. Every decision should advance community benefit, respect the asset lock and comply with cic regulations.
CICs can trade freely and pay director salaries, but remuneration must be reasonable, affordable and consistent with the expectation that most surplus income supports community benefit. Excessive pay could attract regulatory scrutiny and undermine confidence in the CIC. Profits generated by the CIC should overwhelmingly flow toward the stated purpose, not toward enriching directors.
Good practice on stakeholder engagement includes consulting beneficiaries, local residents, funders and partners through meetings, surveys, newsletters or online forums. Reporting back on how feedback influences decisions strengthens trust and helps demonstrate ongoing satisfaction of the community interest test. Strong governance and transparent engagement are key to maintaining credibility with both the CIC Regulator and the communities you serve.
When a CIC Changes, Raises Finance or Winds Up
Like any other company, community interest companies may evolve over time. They may change activities, raise investment or ultimately wind up. The asset lock shapes how each of these events works.
Certain structural changes require CIC Regulator consent or notification alongside ordinary company law procedures. These include amendments to asset lock wording, changes to the nominated asset locked body, or certain share restructurings. You cannot simply pass a resolution and treat the CIC like any other ordinary company when these changes are involved.
CICs limited by shares can raise finance via equity and loan capital while complying with the dividend cap and restrictions on performance-related interest. CICs offer social enterprises access to both commercial and grant funding, making them attractive to social investors who understand the constraints. Any borrowing where interest is linked to company performance must respect the regulatory cap, and such arrangements must be disclosed in the annual report.
On winding up, debts are paid first. Shareholders can only receive their paid-up capital and any unpaid lawful dividends. Remaining assets must pass to the nominated asset locked body or be transferred with Regulator approval. The CIC's assets cannot be distributed to members or directors as in a normal limited company. Founders should seek professional advice before undertaking complex transactions like share buybacks, capital reductions or dissolution, because of the interaction between CIC rules and general company law. Business plans should account for these restrictions from the start.
Frequently Asked Questions (FAQ)
Below are answers to common practical questions about community interest companies not fully covered in the main text.
Can an existing limited company convert to a CIC?
Yes. A standard limited company can usually convert to a community interest company by passing the necessary shareholder resolutions, adopting CIC-compliant articles with an asset lock, and submitting form CIC37 with supporting documentation to the CIC Regulator and Companies House. In 2024-25, 120 existing companies converted to CIC form, bringing total conversions since 2005 to over 3,163. The Regulator will assess whether the proposed CIC satisfies the community interest test. Once cic status is granted, the company cannot revert back to being an ordinary company. The restrictions are permanent.
Can a CIC become a charity later?
Some community interest companies limited by guarantee can convert to charitable status or transfer activities into a new charitable incorporated organisation, but this involves regulatory consent and careful restructuring. A CIC cannot simultaneously be a registered charity. Conversion typically results in losing cic status and coming fully under charity law and the Charity Commission regime. Founders who anticipate a future charity conversion should consider this when choosing their legal structure and drafting their articles.
Do CICs receive any tax reliefs like charities?
CICs do not qualify for tax advantages available to registered charities. They pay Corporation Tax on profits and cannot claim gift aid. Donors to a CIC do not benefit from the same personal tax relief as when giving to a registered charity. However, some funders, grant-makers and local authorities actively favour CICs for their asset lock and community commitment. While there is no automatic tax relief, the CIC brand can open doors to social investment and grant funding that a normal limited company would not access.
Can CIC directors also be employees and be paid?
Directors of a community interest company can be paid employees or office holders, provided their remuneration is reasonable, properly authorised in the articles or board minutes, and consistent with delivering community benefit. CICs can engage in commercial activities for community benefit and use revenue to cover operational costs including salaries. However, excessive pay could undermine confidence in the CIC, attract scrutiny from the CIC Regulator, and potentially breach expectations around the asset lock and use of remaining profits.
How long does it take to register a CIC?
Straightforward CIC applications filed online through Companies House are often processed within two to five working days. Paper applications or complex cases can take longer due to additional checks by the CIC Regulator. If your community interest statement involves unusual or novel activities, allow extra time for closer scrutiny. Always check current processing times on GOV.UK before applying, and make sure your supporting documentation is complete to avoid unnecessary delays.
