Community Interest Company (CIC) vs Charity, The Difference & Alternatives

Most people start by looking at the different legal structures but the answer to Community Interest Company (CIC) vs Charity CIO depends on what you're trying to do and there are alternatives to setting up a charity.  A CIC is not a charity, so this resource explains the difference between a CIC and a charity and helps you to decide if a CIC or charity would be best.  It aslo also provides other non profit alternatives to setting up a CIC or charity CIO.  

Alternatives To Setting Up A Charity Or Charity

Setting up and running any type of non profit, be that a charity or CIC, involves time and workload, so here are some options to avoid that.

• Setting Up An FCA Registered Society.  Such as a Community Benefit Society, Co-operative or a Credit Union.  To find out about thse and other mutual societies, click the AI Tech Bunny icon in the bottom risght and ask it short questions, including key words. 
• Community Amateur Sports Clubs (CASCs) are not a legal structure as such, but allow local amateur sports clubs to register with HMRC and benefit from a range of tax reliefs, including Gift Aid.
• Work With An Existing Charity.  If you wish to raise funds for a particular cause, you could always do so for an existing charity or work in partnership with them - you can search for one here. If you're looking for a charity that works outside the UK, you might also try this site. Working with an established organisation also enables you to benefit from their support and expertise.
• Create A Named Fund.  Alternatively, you could either set up a named fund with a community foundation. It's far easier and a lot less work than setting up and running a charity, but are UK only and not all foundations offer this. There's helpful information on the Heart of Bucks Foundation website and you can find your local community foundation here. 
• Create A Managed Fund.  If you're confident of raising more than £20,000 pa, Prism Funds, operate Collective Funds. You won't need to register, as a charity, and they provide the administration and governance. If you have £10,000 or more to donate, you could set-up a Charities Aid Foundation charitable trust. There are some charges, you would be a signatory, rather than a trustee and the funding must be irrevocably gifted, but CAF manage everything for you.

Free Setting Up a Non Profit

Three online directories Funding Finder, Help Finder and Data Finder and 60+downloadable funder lists.  The system works for both charities and CICs. 

A one-stop shop for everything a non profit needs - simple, quick and everything is free - Register Now

To access help and resources on anything to do with setting up a charity, CIC or any other type of non profit, click the AI Bunny icon in the bottom right of your screen and ask it short questions, including key words.  Register, then login and the in-system AI Bunny is able to write funding bids and download 30+ charity policy templates as well. 

Key Questions In Choosing To Set Up A CIC Or Charity

Here are some key questions you need to ask in order to decide if you should set up either a CIC or charity.

• How quickly can I set up a non profit?  You need quite a bit of information to set either up, but once submitted a Companies House decision on registering a CIC normally takes about 4 days.  Charity registration decisions can take several months and securing registration for a charity is much more challenging. 
• How much flexibility/control do I want?  CICs only require 1 director and, as the Managing Director, you can be a member of the Board.  Charities require at least 3 trustees and are more bureaucratic.    
• Can I be paid for running a CIC or charity?  If anyone on the Board has a close personal or business relationship with a member of staff or company you will work with, there's a conflict of interest, which you will need to manage.  The directors of a CIC can be paid.  Trustees of a charity can also be paid, but it's quite a bit more bureaucratic.  
• Do I need limited liability protection?  If your non profit is incorporated, you directors/trustees will have limited liability protection.  Unincorporated associations (unregistered charities) and charitable trusts do not. If you will have substantive contracts, such as a building lease, or employing staff or undertaking activities that pose some potential risk of being sued, you will almost certainly wish to be incorporated.  
• Will we be trading?  Both charities and social enterprises can trade, but it can be more complicated if you're a charity.  If your charity trading falls within your objects (primary purpose), you shouldn't have corporation tax liability.  However, if it's not (secondary purpose), you may have to set up a trading subsidiary, if the amount exceeds the small trading tax exemption limit.  
• How will my non profit be funded?  Charities are more bureaucratic, but the payback is that they are by far more useful for fundraising and enjoy a range of charitable tax reliefs that CICs do not, particularly Gift Aid.  Gift Aid adds 25% to charitable donations from eligible UK tax payers.  

In summary, A CIC is much quicker to set up and more flexible but a charity is better for fundraising and enjoys a range of sometimes substantial charitable tax reliefs a CIC does not. Neither is better than the other - it's a case of which would best suit what you want to do? 

What's The Difference Between a CIC And A Charity?

• Setting Up A CIC - a social enterprise is a company that uses its profits and assets for the public good. Community Interest Companies (CICs) are probably the most well known, but there are range of other legal structures - here's a useful guide. 
• A CIC Limited By Guarantee is the only type that can convert to a charity, if you subsequently wish to. 
• Setting Up A Charity.  There are 4 legal structures for registered charities; charitable trusts, charitable companies and 2 models of Charity Incorporated Organisations (CIO) - the foundation model (no voting members) and the association model (voting members).  Charities take far longer to set up, are less flexible, but enjoy far more tax reliefs and are better for fundraising.  
• Although less well known, there are an estimated 100k unincorporated associations (unregistered charities) in the UK.  These do not have limited liability protection, you must register if your income exceeds £5k pa and some funders will only support registered charities.  However, these are very quick and easy to set up, you can open a bank account and register with HMRC for Gift Aid.

Setting Up Your CIC Or Charity CIO - Which Type To Choose

This infographic shows you visually the most common types of non profit and the pros and cons of each. 

However, by far the 2 most common choices are a CIC Limited By Guarantee or a registered charity, usually a Foundation CIO. 

• CIC Limited By Guarantee - is quicker and simpler to set-up, has more of a 'business' image than charities and can pay board directors, but don't qualify for charity tax reliefs and, whilst fundraising is possible, it's more difficult.
• Registered Charities - are best for fundraising, can claim the extensive charitable tax reliefs, but are much harder to set up, more bureaucratic to run and paying trustees is more complicated.  

Here's the index for our Non-profit Start-up Toolbox that has a series of toolkits for everything you'll need including registering with Companies House, the Charity Commission and/or HMRC, Gift Aid, conversions and how to open a bank account. 

Alternatives To Setting Up A Non Profit

The line between charities and private business is becoming more blurred and being an ethical company can have real commercial benefits, including improved customer perception and greater staff engagement. There are a range of options.

• The Purposely website will ask you a series of questions, offer you the best options and will even create your new Memorandum and Articles, all completely free of charge.
• A B Corp is a business that balances purpose and profit. Well known in the US, but less so in the UK. However, some well known organisations are B Corps: Alpro, Charity Bank, Alesssi, Hootsuite and Dr Haushka. You can find out more here.

Charity and CIC FAQs

• What are alternatives to setting up a charity?  There are numerous alternatives to setting up a charity.  By far the most common is a CIC.  A less common option is an FCA registered society, such as a Community Benefit Society, Co-operative or a Credit Union.
• Community Interest Company (CIC) vs charity?  A CIC is generally quicker and simpler to set up, less bureaucratic but cannot fundraise as well as a charity and does not eligible for charitable tax reliefs.
• Is a CIC a charity?  A CIC isn’t a charity.  It’s a non profit company regulated by the CIC Regulator.
• What is a CIC?  A CIC is a special type of limited company which exists to benefit the community rather than private shareholders.
• What are the 2 types of CIC?   Most commonly, a CIC can be a company limited by guarantee, or a company limited by shares.
• Which is the best CIC structure to choose?  The vast majority of people choose a CIC limited by guarantee.  It's the only type that can convert to a charity.
• Can a CIC fundraise?  CICs can fundraise from charitable trusts and foundations but, generally, not as successfully as a charity and funders may have specific requirements it must meet.
• Can a CIC convert to a charity? A CIC limited by guarantee can convert to a charity, but a CIC limited by shares can’t.
• How many directors does a CIC need? A CIC must have a minimum of 1 director. There's no maximum.
• Who regulates CICs?  The Office of the Regulator of Community Interest Companies decides whether an organisation is eligible to become, or continue to be, a community interest company (CIC).
• How much does it cost to set up a CIC?  There is a £27 filing fee paid to Companies House.  There are organisations that will do it for you. Expect to pay something like £100 to £200, plus the fee.
• How much does it cost to set up a UK charity. There is no Charity Commission fee to set up a UK charity but expect to pay about £1000 or more for someone to do it for you.
• What is a social enterprise?  A social enterprise is a business with social objectives. Unlike a traditional commercial business, maximising profits is not the primary goal of a social enterprise.
• Is a foundation a type of charity?  Foundations have traditionally been founded by an individual or organisation but a foundation is not a legal structure. Foundation is a Companies House sensitive word and may not be used by companies unless thay are non profit companies. 

Community Amateur Sports Club (CASC) FAQs

• What is a Community Amateur Sports Club (CASC)?  A CASC is not a legal structure as such, but allows local amateur sports clubs to register with HMRC and benefit from a range of tax reliefs, including Gift Aid.
• What are the benefits of registering as a CASC?  The Community Amateur Sports Club (CASC) scheme provides a number of charity-type tax reliefs to support local sports clubs - mandatory 80% relief from business rates, the ability to generate income through the gift aid scheme and exemptions from corporation tax.
• What is the difference between a CASC and a sports charity?  The difference between a CASC and a charity, is that a charity has charitable status and registers with the Charity Commission and can register with HMRC, but a CASC is only registered with HMRC.
• Is a CASC a charity? A sports club could be a CASC or a charity but not both.  CASCs are not regulated by the Charity Commission and organisations registered with HMRC as a CASC, cannot register as a charity. They would need to close down and transfer the assets to a new charity.

Mutual Societies FAQs

What Do I Do Now?

A registered charity ourselves, we provide 8 online health checks, the huge information hub, Quality Mark and 3 online directories. It works for any non profit, not just charities.

• Funding Finder - click through to more funders than any other grants directory, categories for Crisis Funding, Core Funding and Small Charities & Community Groups and 50+ downloadable grant lists.
• Help Finder – find advice, pro bono support and free services and products, including lots of free fundraising support and companies that make product/financial donations.
• Data Finder - finds data for funding bids, fundraising research, impact reporting, planning and campaigning. 

Fast, Simple & Everything Is Free

To find the funding and free help you need – Register Now

To access help and resources on anything to do with running a charity, including funding, click the AI Bunny icon in the bottom right of your screen and ask it short questions, including key words.  Register, then login and the in-system AI Bunny is able to write funding bids and download 30+ charity policy templates as well. 

Caveat!

I am neither a qualified accountant, nor a lawyer, so am not competent to provide professional advice, so this is simply a layman's guide to aid understanding.  Moreover, I write my guides for everyone, so these cannot be specific to your organisation.  If you need professional advice, you should seek it, as my guide is no substitute for this.  To find professional pro bono legal advice, register then login to Help Finder and use the HR and legal serach category. Everything is free.