Start with two questions
1. Who is the surplus for — and forever? If you're genuinely locking your assets and profits to a social purpose permanently, you're heading towards a CIC or a charity. If you want social impact but also the option of returning value to owners, a straight company (perhaps a mission-led one) fits better.
2. Is your purpose exclusively charitable? UK charity law recognises specific charitable purposes (poverty relief, education, health, community, environment, and others) delivered for public benefit. Tick that box and charitable status brings big tax advantages — but also the tightest rules and an unpaid, non-controlling board. Miss it, or want founder control and paid directors, and a CIC is usually the answer.
The full guide compares the five main structures on tax, funding, control and admin, explains the asset lock plainly, and flags the traps that make founders re-incorporate a year in.
The five structures, compared
1. Community Interest Company (CIC)
A limited company with a social mission and an asset lock. Fast to set up at Companies House with the CIC regulator's approval, keeps founder control, allows paid directors, and can be limited by shares or guarantee. Files a CIC34 community interest report each year. Crucially: a CIC is not a charity and pays corporation tax like any company. Best when you want social lock-in plus flexibility, speed and control.
2. Registered charity (unincorporated)
A trust or association registered with the Charity Commission (income over £5,000 in England & Wales). Big tax reliefs — largely exempt from corporation tax, Gift Aid, 80% business rates relief — but trustees are personally liable (no corporate shield), the board is unpaid, and control sits with trustees, not founders. Fine for small, low-risk causes; risky once you sign leases or employ people.
3. Charitable Incorporated Organisation (CIO)
The modern default for most charities: charity status and limited liability, registered only with the Charity Commission (no Companies House double-filing). Registrable at any income level. Slightly slower to set up and less familiar to some funders, but for a new charity that will hold assets or employ staff, usually the right home.
4. Charitable company limited by guarantee
A company (Companies House) that is also a registered charity (Charity Commission) — the traditional route before CIOs. Limited liability plus charity reliefs, but you file with both regulators. Still common, especially for larger or older charities.
5. Company limited by guarantee (non-charitable social enterprise)
A company with no shareholders and no charitable status — flexible, founder-controllable, but without charity tax reliefs. Often a stepping stone or a wrapper for a co-operative or community business. Pays corporation tax.
The asset lock, plainly
CICs and charities both carry an asset lock: assets and surpluses must stay dedicated to the social purpose and can't be extracted for private benefit. On dissolution, remaining assets pass to another asset-locked body, not to founders. It's the promise that makes your mission credible to funders — and it's essentially permanent, so enter it deliberately.
Which structure unlocks which money
- Grants from trusts and foundations — most prefer or require charitable status or a clear asset lock (charities and CICs both qualify for most).
- Gift Aid on donations — charities only (a CIC can't claim Gift Aid).
- Social investment — open to CICs, charities and CLGs; investors look at the lock and the numbers.
- Equity investment — realistically only a CIC limited by shares (capped dividends) or a non-charitable company; charities can't issue equity.
- Community shares — for co-operative and community benefit society structures.
The corporation tax trap The single most common founder surprise: CICs pay corporation tax; registered charities largely don't. A CIC generating surplus from trading owes CT on it just like any company. If maximising tax-free funding for a charitable purpose is the whole point, charitable status (CIO or charitable company) may beat a CIC — the trade-off is control and speed. We model this for founders before they commit.
The common mistakes
- Choosing a CIC for speed, then discovering you can't claim Gift Aid on the donations your model depends on.
- Choosing an unincorporated charity, then signing a lease and exposing trustees personally.
- Assuming a CIC is tax-exempt (it isn't).
- Setting up a charity when the founders actually want control and salaries — a mismatch that surfaces at the first board disagreement.
- Ignoring the trading-subsidiary option: many charities run trading through a subsidiary company that gift-aids profits up to the charity, tax-efficiently.
Getting this right first time is far cheaper than converting later. We help social founders choose and set up the right structure — and register it correctly — as part of getting started. Talk to us first.
