Industrial and Provident Societies wiki
An overview of Industrial and Provident Societies
The International Co-operative Alliance (ICA) Statement on the Co-operative Identity describes a co-operative as ‘an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise’. All co-operative organisations operate under the ICA co-operative values and principles. While the co-operative organisation are usually first thought of as aIndustrial and provident society (IPS) Co-operative, there are many different legal forms that can be used to create an organisation which falls within this definition. For example a company limited by guarantee could be used. One of the key features is usually 'one member one vote'.
Industrial and provident society (IPS) community benefit society (also known as ‘society for the benefit of the community’ or ‘bencom’), Industrial and provident society (IPS) co-operative (also known as ‘bona fide co-operative’) are the two main co-operative legal structures. The difference between the two is in the stakeholder groups that the society is set up to benefit. An IPS co-operative is set up to benefit its members, whereas a IPS community benefit society is set up to benefit the community more widely, whether people are members or not.
The Co-operative and Community Benefit Societies and Credit Unions Act 2010 was passed in march. This will lead to changes to this area and we will update the information as soon as this becomes available. Co-ops UK also provide information in this area.
IPS Co-operative societies
Who controls it?
Management committee
What is the governing document?
Rules
Who is the regulator?
FSA
Does it have limited liability?
Yes
What sources of finance are available?
Loans, Equity Finance, rarely grants
Is charitable status available?
Very rarely
Industrial and Provident Society (IPS) Co-operative society (bonafide co-operative) are a type of society with a co-operative structure that are established for member benefit rather than public benefit. The International Co-operative Alliance Statement on the Co-operative Identity describes a co-operative as ‘an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise’. All co-operatives operate under the the International Co-opertive Alliance co-operative values and Principles.
One of their key features is usually summarised as 'one member, one vote'. There are several different types of co-operatives (e.g. worker, consumer, community, agricultural).
They cannot be charitable, except possibly in a case where a necessary condition of membership is to be within a class of charitable beneficiaries (for example, being a resident in financial need in an area of deprivation).
They can raise equity finance up to a maximum of £20,000. [This restriction does not apply to members who are themselves Co-operative Societies or local authorities who have acquired a holding under the Housing Associations Act 1985.]
IPS Community Benefit Societies
Who controls it?
Management committee
What is the governing document?
Rules
Who is the regulator?
FSA
Does it have limited liability?
Yes
What sources of finance are available?
Loans, Equity Finance, rarely grants
Is charitable status available?
Yes
An Industrial and Provident Society (IPS) community benefit society (Bencom) is set up to benefit the community, whether that community are members or not. The legislation requires that a community benefit society must have some special reason for seeking registration as a society and not as a company. In practice this means including a standard constitutional provision requiring that benefits will not be returned to its own members, demonstrating that business will be conducted for the benefit of the community, and typically including an attachment to the co-operative principle of one member, one vote, regardless of contribution.
Asset Lock
Co-operatives can pay a dividend to their members based on throughput and they also give a return on investment in the form of interest on share capital. Industrial and Provident Society (IPS) community benefit societies (Bencom)cannot pay a dividend but they are able to make a return on investment on the form of interest on share capital.
On winding up, members of an IPS community benefit society only have a right to the return of their capital. They do not have a right to a share of the underlying assets (or equity), and the rules normally make alternative provisions for the application of any surplus on a solvent winding up.
The Industrial and Provident Societies Act 2002 introduces similar protection against demutualising societies to that already applying to building societies, by providing that any transfer of engagements or conversion to a company can only proceed if, as well as being passed by a special resolution, a majority of members takes part in the vote.
The Co-operative and Community Benefit Societies Act 2003 gives the Secretary of State power to make regulations allowing societies to provide that their assets are dedicated permanently for that purpose and connected purposes. The Community Benefit Societies (Restriction on use of assets) Regulations (created under the above Act) came into force on 6 April 2006. They provide that where a non-charitable community benefit society has a restriction on use of the assets, the assets may only be used in the ways allowed by the restriction.
Charitable status for IPS Community Benefit Societies
Industrial and Provident Societies (IPS) co-operative societies cannot generally be charitable. IPS community benefit societies (Bencom) may or may not be charitable, depending on their objects and the extent to which they provide public benefit.
Charitable IPS community benefit societies (Bencom) are currently classed as exempt charities under the Charities Act 1993. This means that they enjoy charitable tax breaks such as relief from income tax, corporation tax and capital gains tax, exemption from inheritance tax and relief from business or non-domestic rates, but they are not required to register with the Charity Commission since they are regulated by the Financial Services Authority.
However, under the Charities Act 2006, charitable IPS community benefit societies will be obliged to register with the Charity Commission if they wish to be charities and receive charitable tax breaks. At the time of writing this provision is expected to come into force in late 2010.
