What has happened to Industrial and Provident Societies?

Following the coming into force of The Co-operative and Communities Benefit Societies Act 2014 (the “Act”) on 1 August 2014, the legal entity known as Industrial and Provident Society no longer exists. The Act consolidates previous industrial and provident legislation, replacing the ‘industrial and provident society’ legal form with two new legal forms:

1. A Co-operative Society; and
2. A Community Benefit Society

If they no longer exist, what is my IPS now?

Prior to 1 August 2014, all societies registered under the Industrial and Provident Societies Act 1965 (or its predecessors) were legally referred to as ‘industrial and provident societies’, whatever they called themselves.  From 1 August, existing societies are now known as ‘Registered Societies’.

Can I form a similar society?

Any new societies registered on or after 1 August will be referred to as either a Co-operative Society or a Community Benefit Society.

What is the difference between a Co-operative Society and a Community Benefit Society?

There are important distinctions between the two legal forms:

1. Co-operative Society

Co-operative Societies are formed primarily to benefit their own members, who will participate in the primary business of the society. They must also fulfil the following conditions:

• Community of interest - there should be common economic, social or cultural needs or interest amongst all the members of the co-operative.
• Conduct of business - the business will run for the mutual benefit of the members, so that the benefit that the members obtain will stem principally from their participation in the business.
• Control - control of the society lies with all the members, exercised by them equally and not based on the amount of money each members has put into the society.
• Interest on share and loan capital - where part of the business capital is the common property of the co-operative, members should receive only limited compensation (if at all) on any share or loan capital which they subscribe.
• Profits - if the rules of the society allow profits to be distributed, they must be distributed among the members in line with the rules.
• Restriction on membership - there should normally be open membership.  This should not be restricted artificially to increase the value of the rights and interest of current members, but there may be grounds for restricting membership in certain circumstances, which do not offend co-operative principles.

2. Community Benefit Societies

Community Benefit Societies are formed primarily to benefit people who are not members of the society and will not participate in the primary business of the society. They must also adhere to the following:

• Conduct of business - the business must be run primarily for the benefit of people who are not members of the society, and must also be in the interests of the community at large.  It will usually be charitable or philanthropic in character.
• Interest on share and loan capital - It will be unusual for a community benefit society to issue more than the nominal share capital (normally £1 share per member).  Where it does issue more than nominal share capital or where members make loans to the society, or both, any interest paid must not be more than a reasonable rate necessary to obtain and retain enough capital to run the business.
• Profits and assets - The society’s rules must not allow profits or the society’s assets to be distributed to the members.  Profits must generally be used to further the object of the society by being ploughed back into the business.
• Dissolution - The society’s rules must not allow assets to be distributed to its members on dissolution.  The rules should state that on dissolution the assets should be transferred to some other body with similar objects.

What if my society does not fall into either category? Or we cannot decide?

The FCA has power to cancel the registration of any society that does not meet one of the conditions of registration. If a current society is not a co-operative society or a community benefit society then that society should consider converting to a company.

For those existing “registered societies” it is not possible to switch to being a “co-operative society” or “community benefit society” without registering a new society.  Should they then decide to re-register, they need to determine which registration they think fit and stick with it as this cannot be changed in the future.

For new societies registering after 1 August 2014, again they must decide whether to register as a ‘co-operative society’ or ‘community benefit society’ as you cannot be both.

What should be stated on letterhead for new societies?

For new societies, FCA guidance is that the status is shown as:

[society name] is a Co-operative Society registered under the Co-operative and Community Benefit Societies Act 2014   or [society name] is a Community Benefit Society registered under the Co-operative and Community Benefit Societies Act 2014.

Our society was registered before the new Act. Do we need to refer to the new Act in our letterhead, and change our name?

For societies registered before 1 August 2014, whilst there is no requirement for organisations to set out their status as Registered Societies, the FCA suggest reference be made to the society being registered under the Act.

It is not a legal requirement to change the society’s name, even if it includes words ‘industrial and provident society’.  However, if the society has ‘co-operative society’ in its name, it must be a bona fide co-operative.  Equally, if its name contains the term ‘community benefit society’, it must exist to benefit the community.

Whilst it is unnecessary to change the society’s rules as a consequence of the Act, the next time that the rules are being amended, you should consider changing references to “Industrial and Provident Societies Act 1965” and “Friendly and Industrial and Provident Societies Act 1968” to “Co-operative and Communities Benefit Societies Act 2014”.

Two key provisions of the Act deal with the requirement to display the name and charitable status of registered societies:

Registered Name Requirements

There is no explicit requirement under the Act for a Registered Society to state that it is a Registered Society in documentation or elsewhere, despite the recommendations in the FCA guidance.

There are however obligations as to the use of the registered name (which reflects the requirements of the 1965 Act) as follows:

1. All registered names must end with a ‘limited’ or ‘ltd’ unless the Registered Society’s objects are wholly charitable or benevolent.

2. The full registered name must be legible and conspicuous on the outside of your registered office and every office or place in which your business is carried out.

3. The full registered name must be stated (and be legible) on the following documentation:

    a. Notices, advertisements and other official publications

    b. Business correspondence

    c. Bills of exchange, promissory notes, endorsements, cheques and order for money or goods, purporting to be signed by or on behalf of the Registered Society

    d. Other business documentation

    e. Websites (including sections on any other persons’ website if the Registered Society placed the section on the other website or authorised it to be placed there)

4. Where a charitable Registered Society’s name does not include the word ‘charity’ or ‘charitable’, it must state on all the documentation listed above that it is a charity.

5. In addition, a charitable Registered Society must legibly state its full registered name on all conveyances purporting to be executed by or on behalf of the Society.  Whilst this is not a statutory requirement for other Registered Societies it is nevertheless recommended best practice.

It is important to keep the above requirements in mind, particularly where you use different trading names for different aspects of your business.  Any officer (or any other person acting on behalf of the Registered Society) who breaches the above requirements are committing an offence and may be liable to fines of up to £1,000. Furthermore, whilst unlikely, any such person could also be held personally liable for any amount payable by the Registered Society under the relevant documentation if the amounts are not paid.

What if I have more questions?

If you are involved with a society (or thinking of setting one up) and are unsure of what you need to do, or if you just want to know more, please give us a call and we shall be happy to help.

Corporate Law

Author: Debbie Farman