Constitutional

Registered Societies formally Industrial and Provident Societies

Registered Societies

(formerly Industrial and Provident Societies)

The Co-operative and Community Benefit Societies Act 2014 consolidates earlier legislation governing Industrial and Provident Societies. Societies registered under the 2014 Act continue to operate under the same fundamental principles, including mutuality, democratic member control and limited liability.

Historically, Industrial and Provident Societies legislation was developed to regulate co-operative bodies whose activities were intended to be carried on for the benefit of their members or the wider community, rather than for private profit. Members typically hold a single share and, in accordance with the society’s rules, general meetings are conducted on the basis of one member, one vote. While registered societies may carry on any lawful business, they are prohibited from being established primarily for investment for profit.

A wide range of not-for-profit organisations, as well as members’ social clubs, are commonly incorporated as registered societies, including housing associations and credit unions, together with certain social enterprises. Incorporation is often achieved using model rules issued by governing or federal bodies, which can materially reduce legal complexity and administrative cost. 

Eligibility for registration

A society may register under the Act if it is established to carry on an industry, business or trade and satisfies the Financial Conduct Authority (FCA) that it is either:

• a co-operative society; or
• a community benefit society.

In all cases, a society must:

In all cases, a society must:

• be carrying on a business, industry or trade;
• have at least three members (unless it has only two members who are both registered societies); and
• provide rules that make provision for all matters required by section 14 of the 2014 Act.

Co-operative societies

A co-operative society operates for the benefit of its members. The FCA would normally expect such a society to demonstrate that:

• there is a common economic, social or cultural need or interest amongst the members;
• the business is run for the mutual benefit of its members;
• control is retained by the members and exercised equally;
• any interest paid on share or loan capital does not exceed a normal commercial rate;
• profits are either reinvested or shared fairly (though not necessarily equally); and
• there are no unreasonable restrictions on membership.

A typical example is a members’ social club, providing facilities such as a bar or social meeting place exclusively for its members.

Community benefit societies

A community benefit society must demonstrate that it is run primarily for the benefit of the wider community rather than its members. In assessing this, the FCA will consider factors such as whether:

• the society operates on a “one member, one vote” basis rather than voting linked to shareholding; and
• the society forms part of a wider group of societies.

In addition, the following conditions must apply:

• the society is run primarily for the benefit of non-members;
• any interest paid on share or loan capital does not exceed a normal commercial rate;
• the society’s rules prohibit the distribution of profits or assets to members; and
• on dissolution, assets must be transferred to a body with similar objects and not distributed to members.

Examples include housing associations and organisations operating community transport services.

Registration and role of the Financial Conduct Authority

Registered societies must be registered with the Financial Conduct Authority (FCA) under the Co-operative and Community Benefit Societies Act 2014.

The FCA’s role differs from that of Companies House. Its responsibilities include:

• registering societies and their rules;
• registering amendments to rules; and
• receiving annual returns and accounts.

The FCA does not regulate registered societies in the same manner as authorised financial services firms, nor does it undertake routine prudential supervision. However, it has statutory powers to require information and, in limited circumstances, to appoint inspectors to examine the affairs of a society.

Features of a Co-operative and Community Benefit Society

Matters to be provided for in the rules

Section 14 of the 2014 Act requires a society’s rules to provide for, among other matters:

1. the name of the society;
2. the objects of the society;
3. the registered office;
4. terms of admission of members;
5. meetings, voting rights and rule-making procedures;
6. appointment, removal and remuneration of officers and committee members;
7. limits on shareholdings and interest payable;
8. borrowing powers and deposit arrangements;
9. transferability or withdrawal of shares;
10. audit of accounts;
11. withdrawal of members and treatment of deceased or bankrupt members;
12. application of profits;
13. custody and use of the society’s seal; and
14. investment of funds.

Statutory obligations

Following registration, a society must comply with a number of statutory obligations, including:

• s.11(1): displaying its registered name at its registered office and places of business;
• s.11(2): stating its registered name on correspondence, notices, advertisements and websites;
• s.30(1): maintaining a register of members and officers;
• s.75(1): keeping proper books of account;
• s.81: displaying a copy of the accounts at the registered office; and
• s.89: filing an annual return and accounts with the FCA within seven months of the year end.

Membership and shares

Each member must hold at least one share, typically of low nominal value (for example £1 or 5p). Under s.24(1), no person may hold more than £100,000 in shares.

In practice, many societies restrict members to a single, non-transferable share on which no dividend or interest is paid. There is no limit on a society’s nominal share capital, and rules may permit the raising of capital through share issues to members.

Meetings and voting

The society’s rules must specify arrangements for meetings and voting rights. Most societies operate on the basis of one member, one vote at general meetings.

Binding effect of rules

Under s.15, a society’s registered rules bind the society and its members as if each member had formally executed the rules. A member is not bound by a subsequent rule amendment that increases their financial liability unless they have consented in writing.

Disputes

Section 137 allows societies to determine disputes in accordance with their rules. Where rules provide a dispute resolution mechanism, disputes between members and the society or its officers must be resolved in that manner, and decisions are binding. In appropriate cases, enforcement may be sought through the magistrates’ court or county court.

Umbrella or governing bodies

The legislation is well suited to groups of societies associated with an umbrella body, such as the Club and Institute Union or the Association of Conservative Clubs. Governing bodies may sponsor standard model rules appropriate to the activities of the group, with member societies holding shares in the governing body.

Advantages and disadvantages

Advantages

• Corporate status with limited liability
• High-quality constitutions supported by model rules
• Ability to grant floating charges
• Automatic vesting of assets on incorporation
• Simplified dispute resolution
• Statutory winding-up procedures
• Potentially favourable tax treatment in appropriate circumstances

Disadvantages

• Reduced privacy due to public filing requirements
• Potential audit obligations
• FCA inspection powers
• Annual FCA fees
• Relative unfamiliarity of the legal form among advisers