New law in force and change of terminology for Industrial and Provident Societies
Industrial and provident societies should be aware of the new Co-operative and Community Benefit Societies Act 2014, which came into force on 1 August 2014.
The new Act consolidates and replaces existing legislation governing all societies. It replaces the old term ‘industrial and provident' society with the more modern terms ‘community benefit’ society and ‘co-operative’ society. All new societies must now choose which of these types of society is the most appropriate structure for them, in line with registration rules issued by the Financial Conduct Authority (FCA). Existing societies do not need to change their name or structure or re-register, but are all now referred to as 'registered societies' rather than 'industrial and provident societies'.
The key difference between a community benefit society and a co-operative society is that co-operatives are established for the mutual benefit of the members of the society, whereas community benefit societies operate for the benefit of persons other than the members.
Other than the change in terminology, the Act does nothing other than consolidate existing law. However, there have been other important recent changes in legislation, all of which are now consolidated into the new Act, such as those that came into force on 6 April 2014, including:
- The maximum number of withdrawable shares that can be held by a member was increased from £20,000 to £100,000. This was an important change in particular for social enterprises and community enterprises established as community benefit societies, because this provides far greater flexibility when looking to raise funds through investment, in light of the legal restrictions on distributing profits to members. The exemption from prospectus regulations makes this legal form particularly attractive to small community organisations who wish to raise funds for local community projects by issuing shares to the public, whether through traditional means or the growing trend of crowdfunding.
- Societies were provided with new insolvency rescue procedures, such as company voluntary arrangements and administration, giving them more options (akin to those available to companies) when faced with financial difficulties. This was an important change, because prior to its introduction the only insolvency options available were liquidation and dissolution. (This change does not apply to private registered providers of social housing or registered social landlords.)
- Additional FCA investigative powers were introduced, including the power to appoint an inspector to investigate the affairs of a society when it appears to the FCA that, for example, there has been an intention to defraud creditors or if it suspects the society has been conducted for unlawful purposes or in a way which unfairly prejudices a group of members. Again, this brings the rules applying to societies more in line with that for companies.
For full guidance on the new Act, including advice on updating references to the Act on your website and letterheads, please see the FCA website.
If you require advice on setting up a co-operative or community benefit society, or if your society needs advice on raising funds by issuing shares to the public, or on its governance arrangements and making changes to its Rules, please contact Liz Brownsell.