Company Structure: CIC to Ltd ​
Not legal advice
This is research, not legal advice. Get a solicitor experienced in CIC restructuring before acting on any of this.
Status: Research done, needs solicitor | Date: 31 March 2026 | Research: Owl #578, Claude Code, two specialist agents
Why we're looking at this ​
Spectrum Dynamics is a CIC. We built SpektraBot, SpectraCare, a 451K-chunk knowledge base, a RAG system, an eval framework, and a lot of prompt engineering. That's real IP.
Rachel and Joel want to turn this into a proper business: raise investment, build equity, and sell or be acquired within 3 to 5 years. The CIC's asset lock and 35% dividend cap make that impossible.
Jim (SEND barrister, 3PB Chambers) and Matt (entrepreneur, scaled a seven-figure business) want in. They need an equity-friendly structure too.
The hard truth ​
You cannot convert a CIC into a Ltd. Every model in the owl council agreed. It's in the law.
Section 54 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 says a CIC can only become a charity or a community benefit society. Not a Ltd. The asset lock is permanent.
So the question isn't "CIC or Ltd?" It's "how do we build around the CIC?"
Three options ​
Option A: Clean break with golden share (recommended) ​
Set up a new Ltd. The CIC sells all its IP to the new Ltd at market value. The CIC keeps a golden share (a mission veto) and a small equity stake, then goes quiet.
Why this works:
- Investors see one company with clear IP ownership
- Qualifies for SEIS and EIS (50% and 30% tax relief for angels, which CICs can't get)
- You can issue EMI share options to Jim, Matt, and future hires
- Founders qualify for Business Asset Disposal Relief (14-18% CGT instead of 24%)
- Trade buyers see a simple structure they can acquire
- B Corp certification keeps the social mission credible
- The golden share stops anyone gutting the mission
The cost: Corporation tax on the IP gain inside the CIC (19-25%, depending on size). The IP was built in-house, so the book value is near zero. Most of the sale price counts as gain.
Who's done this: Toast Ale moved from CIC to Ltd and raised £5M. Oddbox and Rubies in the Rubble did similar moves to open up investment rounds.
Option B: CIC plus a trading Ltd ​
Keep the CIC alive as the IP holder. Set up a separate Ltd that pays the CIC a licence fee.
This sounds tidy, but investors hate it. The IP is stuck between two companies. HMRC watches the licence fees closely under transfer pricing rules (TIOPA 2010, Part 4). When you try to sell, the buyer has to untangle the whole thing. Multiple owl council members flagged this as a deal-breaker for VCs.
Option C: Holding company ​
Put a new HoldCo Ltd at the top, with the commercial Ltd and CIC underneath.
This makes sense for a multi-product portfolio, but it's overkill right now. Two founders, no revenue. You can always add this layer later.
How the recommended structure looks ​
5-10% ordinary equity
Royalty-free licence for community work
v
Issues ordinary shares, EMI options
Eligible for SEIS/EIS, ASAs, VC investment
Target: B Corp certified within 18 months
Day one cap table ​
| Who | Share |
|---|---|
| Rachel and Joel | 75-80% |
| CIC | 5-10% ordinary + golden share |
| Option pool (Jim, Matt, future hires) | 10-15% |
What the golden share blocks (and what it doesn't) ​
What the CIC can veto
- Changing the company's mission statement
- Selling the core SEND/social care IP outside the group
- Removing mission protection from the articles
What the CIC cannot block
Dividends, fundraising, share issuance, hiring, commercial decisions, or being acquired. Investors don't mind it.
How the IP moves ​
Tax ​
The IP transfer (see flow diagram above) ​
The IP valuation costs about £3-8K. If the new Ltd has no cash at the start, it pays the CIC with a loan note and pays it down from revenue over time. The CIC pays corporation tax on the gain: 19% if under £50K, 25% if over £250K. The Ltd then writes off the IP cost over its useful life, reducing its own tax bill (CTA 2009, Part 8).
When you sell the company (3-5 years) ​
| Who | Tax relief | Rate | Limit |
|---|---|---|---|
| Rachel and Joel | Business Asset Disposal Relief | 14% now, 18% from April 2026 | £1M each |
| Jim and Matt (EMI options) | Same relief, relaxed rules | Same rates | £1M each |
| SEIS/EIS investors | Full exemption | 0% CGT if held 3+ years | Per-scheme limits |
The standard rate is 24%. So BADR saves a lot. And SEIS/EIS investors pay nothing on gains. That's the pitch that gets angels excited.
The big prize: SEIS and EIS ​
CICs are shut out of SEIS and EIS. The new Ltd isn't.
| Scheme | What the investor gets | How much you can raise |
|---|---|---|
| SEIS | 50% income tax relief, plus 0% CGT | £250K |
| EIS | 30% income tax relief, plus 0% CGT | £12M over the company's life |
An angel putting £50K in via SEIS gets £25K back from HMRC immediately. That's a powerful incentive.
Where Jim and Matt fit ​
| Person | Role | Equity | How | Vesting |
|---|---|---|---|---|
| Jim | Advisory board, SEND legal testing | 1-2% | EMI options if he meets the working time test, or growth shares if not | 3 years, 12-month cliff |
| Matt | Non-exec director, operational scaling | 1.5-3% | EMI options or growth shares | 3 years, 12-month cliff |
EMI needs someone to work at least 25 hours a week for the company, or 75% of their total working time. Jim is a busy barrister. He almost certainly can't meet that. Growth shares are the backup: a separate class with a hurdle value, so he only benefits from gains above today's price. No income tax on issue if the hurdle equals current value.
Jim probably can't be a statutory director either (BSB Handbook, rC21 on conflicts). An advisory board seat is cleaner.
Set aside 10-15% of equity as an option pool. Jim and Matt take 3-5% between them. The rest is for a future commercial director, fractional CFO, or key hires.
B Corp ​
B Corp is not a legal form. It's a private certification from B Lab. You need to:
- Score 80 or more on the B Impact Assessment
- Add a stakeholder clause to your articles (section 172, Companies Act 2006)
- Pay about £1-2.5K a year
- Recertify every three years
B Corp does not create an asset lock or a dividend cap. Investors are fine with it. Over 2,700 UK companies hold it, including Innocent Drinks (before the Coca-Cola deal), Cook, and Toast Ale.
The story writes itself: "We restructured from a CIC to a B Corp Ltd so we could scale our mission to more families." Impact investors and council procurement teams both like that framing.
What to do next (90 days) ​
| When | What | Who |
|---|---|---|
| Week 1-2 | Hire a social enterprise solicitor (Bates Wells, Anthony Collins, or Stone King) | Joel and Rachel |
| Week 1-2 | Commission an independent IP valuation | Solicitor arranges |
| Week 3-4 | Set up Spectrum Dynamics Ltd with B Corp-ready articles and a golden share class | Solicitor |
| Week 3-4 | Issue founder shares: Rachel/Joel 75-80%, CIC 5-10% ordinary + 1 golden share, reserve 10-15% option pool | Solicitor |
| Week 5-6 | IP valuation comes back. Draft the asset purchase agreement and licence-back to CIC | Solicitor and valuer |
| Week 5-6 | CIC board minutes the decision, tells the CIC Regulator | Joel and Rachel |
| Week 6-8 | IP transfer completes. CIC gets its loan note. | Both companies |
| Week 6-8 | Apply for EMI advance assurance and SEIS/EIS advance assurance from HMRC | Accountant |
| Week 8-10 | Get a Section 431 valuation agreed with HMRC (sets a low strike price for options) | Accountant |
| Week 8-10 | Issue options or growth shares to Jim and Matt | Solicitor |
| Week 10-12 | Open a data room. Start an angel/SEIS round (ASA at £2-3M cap, raise £200-500K) | Joel, Matt's network |
| Week 12+ | Start the B Corp assessment | Rachel |
Still to decide ​
- Rachel and Joel's equity split. The founders' agreement (#560) doesn't say. Needs agreeing before the Ltd is set up.
- What happens to the CIC. Keep it dormant (recommended, costs nothing, holds the golden share) or wind it up?
- Jim's BSB position. He needs to check with 3PB management before any equity arrangement.
- Matt's working time. Determines whether he gets EMI options or growth shares.
Key legislation ​
| Law | What it covers |
|---|---|
| Companies (Audit, Investigations and Community Enterprise) Act 2004 | CIC rules, asset lock, why you can't convert |
| Community Interest Company Regulations 2005 | Dividend cap (35%), dissolution rules |
| Companies Act 2006 | Ltd incorporation, articles, golden shares |
| Income Tax (Earnings and Pensions) Act 2003, Schedule 5 | EMI share options |
| Taxation of Chargeable Gains Act 1992, sections 169H-169S | Business Asset Disposal Relief |
| Corporation Tax Act 2009, Part 8 | Writing off IP costs |
| Taxation (International and Other Provisions) Act 2010, Part 4 | Transfer pricing between connected companies |
| Income Tax Act 2007, Part 5/5A | SEIS and EIS investor relief |
| Public Services (Social Value) Act 2012 | Social value scoring in public sector procurement |
Who to call ​
- Bates Wells (London): the go-to firm for social enterprise restructuring
- Anthony Collins (Birmingham): strong on social enterprise and charity law
- Stone King: social enterprise and charity specialists
- Metis Partners or Inngot: IP valuers
- SeedLegals: affordable for EMI schemes, ASA templates, and standard fundraising documents
Where the research came from ​
- Parliament of Owls, GH #578 (12 LLM responses)
- CIC Regulator guidance
- CIC Regulations 2005
- B Lab UK
- Lambert Toolkit (IPO): model IP licensing agreements
- Employee Ownership Association
- Case studies: Toast Ale, Oddbox, FutureGov/TPXimpact, Big Issue Group