CIC vs Ltd: Which Company Type Is Right for Your Social Enterprise?
Written by Ben Ahern, Founder of CIC Tools and Co-founder of Homeless Aid UK CIC. Last updated 17 September 2026.
A practical comparison of Community Interest Companies and standard limited companies: what each one lets you do with the money, what it costs, what you have to file, and which one funders and councils will take seriously.
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Introduction
If you are setting up a mission-driven business in the UK, one of the first decisions is whether to register as a Community Interest Company (CIC) or a standard limited company (Ltd).
Both are limited companies registered with Companies House. Both can trade, employ staff and generate revenue. The difference is what happens to the money, and the level of accountability that comes with it.
The short answer: if community impact is your primary goal and you want a structure that reflects that, a CIC is likely the right fit. If profit and investment flexibility matter more, a standard Ltd gives you more room.
Side-by-side comparison
| Feature | CIC | Standard Ltd |
|---|---|---|
| Asset lock | Yes, required | No |
| Community interest test | Yes, assessed by the CIC Regulator | No |
| Profit distribution | Restricted: dividends capped at 35% of distributable profits (shares CICs only) | Unrestricted |
| Registration fee | £115 online, £139 paper | £100 online, £124 paper |
| Annual community report (CIC34) | Yes, £15 with the accounts | No |
| Regulator | CIC Regulator and Companies House | Companies House only |
| Director pay | Allowed if reasonable; disclosed in the CIC34 | Allowed, no restriction |
| Grant funding eligibility | Strong signal to community funders | Variable; often excluded from community grants |
| Investor suitability | Limited by the dividend cap | Strong |
| Tax treatment | Standard Corporation Tax | Standard Corporation Tax |
| Can it change later? | Cannot become an ordinary company; can become a charity or CIO | Can convert to a CIC (£45) |
Fees from the Companies House fees page; dividend cap from the Regulator's 2014 dividend cap notice; conversion rules from the CIC guidance chapters. Checked 17 September 2026.
Choose a CIC if
Your primary goal is community impact and you want a structure that signals social purpose to funders and partners.
Choose a Ltd if
Your primary goal is commercial flexibility and you want full control over profit distribution and investment.
What is a CIC?
A Community Interest Company (CIC) is a type of limited company designed for organisations that want to benefit the community. Introduced in 2005, it gives social enterprises a formal structure without becoming a charity.
- Community interest test: the Regulator must be satisfied that a reasonable person would consider your activities to be for the benefit of the community.
- Asset lock: assets are permanently locked for community benefit and cannot be extracted for private gain. See What is the CIC asset lock?
- Limited by guarantee or shares: most CICs are limited by guarantee; a shares structure exists for those raising investment.
- CIC34 annual report: a short extra report filed each year alongside the accounts.
- Regulated by the CIC Regulator: light-touch oversight of the asset lock, dividends and director pay.
There are over 34,000 CICs on the register, working in everything from community cafes to mental health support to environmental projects. You can explore them in our CIC Directory.
What is a standard Ltd company?
A standard limited company (Ltd) is the default business structure for most UK companies. It can be limited by shares or by guarantee, and it answers only to Companies House.
- No asset lock: directors and shareholders can distribute profits freely
- No community interest test: no requirement to demonstrate community benefit
- Full profit distribution: dividends can be paid to shareholders without restriction
- Standard filing only: annual accounts and a confirmation statement
- Investor-friendly: the structure investors already understand
Ltd companies cover everything from freelance consultants to tech startups to large enterprises. It is by far the most common company type in the UK.
When a CIC is the better choice
A CIC is usually the right structure when community impact is your primary reason for setting up.
A CIC is stronger for
- Signalling social purpose
The asset lock and community interest test tell funders and partners that impact comes first.
- Applying for grants
Many community funders only accept not-for-profit structures. CIC status is a clear, recognised signal.
- Building stakeholder trust
Communities, councils and partner organisations recognise the CIC model as purpose-driven.
- Reinvesting profits into the mission
If most of your surplus goes back into the cause, the CIC structure formalises that promise.
Common examples
- Community cafes and social enterprises
- Organisations employing people with barriers to work
- Environmental and education programmes
- Mental health and wellbeing services
- Arts and culture organisations with community goals
- Local sports clubs serving the community
When a Ltd is the better choice
A standard Ltd is more suitable when commercial flexibility is your priority.
A Ltd is stronger for
- Raising private investment
Investors expect equity returns. The CIC dividend cap makes that hard.
- Full control over profits
No restrictions on how earnings are distributed to shareholders or directors.
- Simpler reporting
No CIC34 report and no regulator beyond Companies House.
- Maximum operational flexibility
No asset lock, so you can pivot, sell or wind up without a regulator's say.
Common examples
- Tech startups seeking venture capital
- Consultancies and freelance businesses
- Retail and hospitality without a specific community mandate
- Sales-driven commercial enterprises
- Businesses expecting to sell or exit in future
Want help with the paperwork?
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Switching between structures
The two directions are not symmetrical. A Ltd can become a CIC. A CIC can never become an ordinary company again.
Ltd to CIC
This is a well-established process:
- The members pass a special resolution to change the name to end in “CIC” and adopt CIC articles including the asset lock
- The company files a community interest statement (see our CIC36 guide for what it needs to say)
- Companies House charges £45 for the conversion and passes the papers to the CIC Regulator
- The Regulator decides whether the company passes the community interest test
CIC to Ltd
Not possible. The CIC Regulator's guidance says that once a company is a CIC it cannot become an ordinary company. The only ways out are dissolving the company altogether, or converting it to a charity or Charitable Incorporated Organisation (CIO), where the assets stay locked for public benefit.
Source: CIC Regulator, Community interest companies: guidance chapters; conversion fee from the Companies House fees page.
Tax: what you actually need to know
One of the most common misconceptions is that CICs get special tax treatment. They do not.
Both CICs and standard Ltd companies pay the same taxes:
- Corporation Tax on taxable profits: 19% on profits up to £50,000, 25% above £250,000, with marginal relief in between
- VAT once taxable turnover passes £90,000 in any 12 months (or on voluntary registration)
- Employer National Insurance and PAYE if you employ staff
There is no Corporation Tax exemption for CICs. That relief is reserved for registered charities. If tax relief is a deciding factor, read our CIC vs Charity comparison instead.
Sources: Corporation Tax rates and VAT registration thresholds on gov.uk.
Common misunderstandings
- “CICs are non-profits”: CICs can and do make a profit. The difference is that profits are primarily reinvested in the community purpose, and dividends are capped.
- “CICs can't pay directors”: they can. Directors can receive a reasonable salary, just like in a standard Ltd, and it is disclosed in the CIC34.
- “CIC status guarantees grant funding”: it does not. It makes you eligible for funds that a Ltd cannot touch, but every application still has to be won.
Decision checklist
Work through these questions to see which structure suits your situation:
- CIC
Is community benefit the central purpose of your organisation?
Yes = CIC. No = Ltd.
- Ltd
Do you need full flexibility to distribute profits?
Yes = Ltd. No = either.
- CIC
Will you apply for community grants or social funding?
Yes = CIC (many funds are closed to a Ltd). No = either.
- Ltd
Do you expect to raise private investment?
Yes = Ltd (no dividend cap). No = either.
- Ltd
Do you want the fewest reporting requirements?
Yes = Ltd (no CIC34 report). No = either.
- Ltd
Might you want to sell the business or take it private later?
Yes = Ltd (a CIC cannot become an ordinary company). No = either.
- CIC
Do you want your structure to show stakeholders you exist for impact?
Yes = CIC. No = either.
How to read your answers
- Mostly CIC: a Community Interest Company is likely the right fit.
- Mostly Ltd: a standard limited company gives you the flexibility you need.
- Mixed: decide what matters most, accountability and purpose (CIC) or flexibility and exit options (Ltd).
Frequently asked questions
Do CICs get special tax breaks?
No. CICs pay Corporation Tax, VAT and employer National Insurance in the same way as any standard limited company. There is no tax relief for being a CIC. What CIC status does do is make your social purpose visible to grant funders. See Do CICs pay tax?
Can CICs make a profit?
Yes. CICs can and do make a profit through trading. The difference is what happens to it: a CIC limited by guarantee reinvests everything, and a CIC limited by shares can pay dividends only up to 35% of distributable profits in aggregate. See Can a CIC make a profit?
Can I convert a Ltd to a CIC?
Yes. An existing company can convert to a CIC: the members pass a special resolution to change the name and adopt CIC articles with the asset lock, the company files a community interest statement with Companies House, and the CIC Regulator decides whether it passes the community interest test. Companies House charges £45 for the conversion. Read our CIC36 guide for what a community interest statement needs to say.
Can I convert a CIC to a Ltd?
No. The CIC Regulator's guidance is explicit: once a company is a CIC it cannot become an ordinary company. The only ways out are dissolving the company or converting it to a charity or Charitable Incorporated Organisation. That is why the choice matters at the start.
Is a CIC a charity?
No. A CIC is a limited company with a community purpose, not a registered charity. CICs do not get charity tax reliefs and are not regulated by the Charity Commission. For that comparison see our CIC vs Charity guide.
Which is better for getting grants?
A CIC. Many community grant programmes are only open to not-for-profit structures, and the asset lock and community interest test show funders that profits cannot be extracted. A standard Ltd can still apply for some business grants, but it is usually excluded from community and social funding.
Can a CIC pay its directors?
Yes. CIC directors can be paid a reasonable salary for the work they do, the same as in a standard Ltd. The difference is transparency: director pay is disclosed in the annual CIC34 report and the Regulator can challenge pay it considers excessive. See CIC director pay.
Next steps
Setting up a CIC
CIC Tools drafts your CIC36 community interest statement and articles of association from a set of guided questions. You upload them to Companies House and pay the £115 fee. Or follow our free step-by-step guide.
Start your CICSetting up a Ltd
You can register a standard limited company directly with Companies House for £100 online, or through a company formation provider.
Go to gov.ukQuick question before you read on
Interested in an online guided CIC setup course?
Ben (who runs CIC Tools and his own CIC) is thinking about turning his experience into a step-by-step video course: setting up, staying compliant, and finding your first funding. He'll only build it if enough founders want it - your answer is the vote.
About the author
Ben Ahern is the founder of CIC Tools and co-founder of Homeless Aid UK CIC, which feeds around 1,000 people a week. He registered his own CIC, has run community organisations in the North West of England for over a decade, and built CIC Tools so other founders could skip the paperwork headaches he had first-hand.
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