New law for cooperatives and community benefit societies

Some say the new legal structure will put industrial and provident societies on a par with companies; others are less positive. Sam Burne James reports

The Co-operative and Community Benefit Societies Act 2014 streamlines the rules on industrial and provident societies
The Co-operative and Community Benefit Societies Act 2014 streamlines the rules on industrial and provident societies

In May, the sector welcomed the passing of the Co-operative and Community Benefit Societies Act 2014. This streamlined several old and new bits of statute into one single set of rules governing industrial and provident societies, a legal structure encompassing both community benefit societies, also known as bencoms, and cooperative societies. Both structures involve members owning shares in the society, but the key difference is that coops are run for the benefit of members, bencoms for the benefit of society. Some bencoms are also charities.

David Alcock, a senior associate at Anthony Collins Solicitors, says the bill is a positive step. "We've seen a gradual but definite increase in the use of community benefit societies in particular, often for raising funds for particular community projects, and we have registered a number of community land trusts in that structure," he says.

When social entrepreneurs are looking to set something up, the cooperative option is now more prominent

James Wright, policy manager, Co-operatives UK

The most striking aspect of the act is that bencoms will now be legally known as bencoms and coops as coops, with the historic umbrella term IPS being abolished. Getting rid of the IPS label is useful, Alcock says, because it "will increase understanding of what these organisations are".

James Wright, policy manager at the umbrella body Co-operatives UK – half of whose 656 full members are bencoms – agrees. "This is the first time cooperatives appear in a coherent legal form, so it will make it easier for people to understand what they are," he says. "When social entrepreneurs are looking to set something up, the cooperative option is now more prominent; it's not a case of 'what the hell is this IPS thing?'"

He says the law puts these two structures on a par with companies, and that the act's most important measures are the provisions for societies to go into administration, allowing staff to be covered by the Pension Protection Fund. This, he says, gives them the same protection companies have in relation to disqualified directors; extra investigative powers for the FCA; and the "long overdue" increase in the total amount a single individual can invest in societies, from £20,000 to £100,000.

But Malcolm Lynch, a partner at the law firm Wrigleys, has concerns. "You have in company law a modern structure that is suited to both large and smaller organisations, but this legislation has not been relevant to both," he says. There are various provisions in company law that don't exist for these organisations, he says, such as the right to entrench rules in the articles of association.

Lynch says the law's weakness, and general misunderstanding of these structures, sometimes leads organisations to choose a different structure, when they should be coops or bencoms. There are 8,053 IPSs currently registered with the FCA, and the sector will hope that this number rises further under its consolidated law.

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