There is no single legal form called a social enterprise. The main choices are a charity (usually a charitable company or a charitable incorporated organisation), a community interest company, or a registered society such as a cooperative or community benefit society. The right one depends on whether the purposes are exclusively charitable, whether founders want to be paid and keep control, whether investors expect a return, and how much the tax reliefs available only to charities are worth.

What structures can a social enterprise use?

Government guidance on setting up a social enterprise lists a limited company, a charity or charitable incorporated organisation (CIO), a cooperative, a community interest company (CIC), and a sole trader or business partnership. An ordinary company or partnership can pursue social aims, but nothing in its legal form protects those aims or its assets if the owners change their minds. The three forms compared here each build in some form of protection, and each comes with its own regulator.

When is a charity the right choice?

A charity must be established for charitable purposes only and must meet the public benefit requirement. In exchange it gets the most generous tax treatment. HMRC’s guidance says charities do not pay tax on most types of income as long as they use it for charitable purposes, and can claim back tax deducted on donations through Gift Aid, but only once recognised by HMRC.

Gov.uk lists four common charity structures. Two of them suit a trading social enterprise because they give trustees limited liability:

  • Charitable company. A company limited by guarantee, not by shares, registered at Companies House (see companies limited by guarantee). Under section 30 of the Charities Act 2011 it must also register with the Charity Commission unless an exception applies, and a charity whose gross income does not exceed £5,000 is not required to register.
  • Charitable incorporated organisation. Created by registering with the Charity Commission, with no Companies House registration. Section 205 makes a CIO a body corporate with a constitution, a principal office in England or Wales and one or more members, who may have no liability on a winding up or liability capped at a stated amount. Section 206 sets out what the constitution must contain. Gov.uk states a CIO must register whatever its income.

The main drawback for founders is pay. The CIC Regulator’s information pack notes that charity board members may only be paid where the constitution allows it and it is in the charity’s best interests, so a founder who wants a salary usually cannot sit on the board and must hand strategic control to volunteer trustees. Charities that want to trade outside their purposes often do it through a subsidiary company that passes its profits up, described in company donations to charity.

When is a community interest company a better fit?

A CIC is a limited company with extra rules from Part 2 of the Companies (Audit, Investigations and Community Enterprise) Act 2004. Section 35 requires it to satisfy the community interest test: a reasonable person might consider its activities are carried on for the benefit of the community. Every CIC has an asset lock, so assets can leave only for full value or to another asset locked body such as a charity or another CIC. A CIC limited by shares may pay dividends to private investors, but the information pack gives the maximum aggregate dividend as 35% of distributable profits. The detail is in community interest companies.

The pack also states that CICs get no tax breaks from their legal status, pay corporation tax like any other company, and cannot apply for Gift Aid status. In return, directors can be paid and founders can keep control, the community interest test is wider than charitable purposes, and regulation is lighter. A CIC can be registered online through Companies House for £115. A CIC cannot also be a charity: section 26(3) provides that a CIC established for charitable purposes is treated as not being so established. Each year it files a community interest report alongside its accounts, covered in the CIC34 report and the CIC Regulator.

What about cooperatives and community benefit societies?

Registered societies are registered by the Financial Conduct Authority under the 2014 Act governing cooperative and community benefit societies. Section 2 allows registration as a cooperative society where the FCA is satisfied it is a bona fide cooperative, or as a community benefit society where its business is conducted for the benefit of the community. The society needs at least three members (or two members that are both registered societies), rules covering the points listed in section 14, and a registered office in Great Britain or the Channel Islands. A cooperative cannot be run mainly to pay interest, dividends or bonuses on money invested in it.

Societies suit enterprises owned by their members or by a local community, such as a community shop or energy scheme, and can raise money by issuing withdrawable shares to the public. Section 24 caps any one member’s interest in withdrawable shares at £100,000, though the cap does not apply to a member that is itself a registered society. The FCA notes that a society carrying on a regulated financial activity also needs authorisation.

How do the main structures compare?

Point Charitable company CIO CIC Registered society
Registered with Companies House, and the Charity Commission unless exempt or excepted Charity Commission only Companies House, with the CIC Regulator approving FCA
Purpose test Exclusively charitable, public benefit Exclusively charitable, public benefit Community interest test Bona fide cooperative or benefit of the community
Returns to investors No shareholders No shareholders Share CICs: dividends capped at 35% of distributable profits Withdrawable shares, up to £100,000 per member

Can the structure be changed later?

Some moves are possible, but none is quick. Section 53 of the 2004 Act provides that a CIC can stop being a CIC only by dissolution, by becoming a charity, or by becoming a registered society under regulations. The information pack explains that a charitable company in England, Wales or Scotland may convert to a CIC with Charity Commission consent, losing charitable status, and that its existing charitable property cannot pass to the CIC but must be held by a charitable trust. A registered society becomes a CIC in two stages, converting first to an ordinary company. Under section 228 of the Charities Act 2011, a charitable company can apply to the Charity Commission to convert into a CIO, unless it has shares not fully paid up or is an exempt charity.

How might the choice work out?

Illustration only. Three founders each start a project.

  • A café training young people for work, where the founder wants a salary, control and a small outside investor, fits a CIC limited by shares. It pays corporation tax, but the investor can receive capped dividends.
  • A village wanting to buy its closing shop with money from 200 residents fits a community benefit society issuing withdrawable shares, with each resident’s holding well under the £100,000 cap.
  • A counselling service funded by grants and donations, with an unpaid board, fits a CIO, which can claim Gift Aid once recognised by HMRC.

What mistakes come up most often?

  • Forming a CIC and expecting Gift Aid or charity tax reliefs.
  • Making a founder a paid trustee of a charity without a power in the constitution.
  • Forgetting that a charitable company with income above £5,000 must also register with the Charity Commission unless it is exempt or excepted.
  • Trying to register a CIC as a charity, which section 26(3) prevents.
  • Planning a future sale of the business without accounting for the asset lock.
  • Applying to register a society with only two individual members.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.