Industrial and provident societies that pay interest on the shares they issue cannot become charities, the Attorney-General has confirmed.
The Charity Commission referred the question to Dominic Grieve, the Attorney-General, in January because it expected to be asked to register as charities a small number of industrial and provident societies.
The IPSs concerned are currently considered exempt charities and are regulated by the Financial Services Authority, but exempt charities are being required to register with the commission under a provision of the Charities Act 2006.
"The commission's view has been that IPSs with power to pay interest or dividend on shares is incompatible with charitable status," the commission said in a statement. "However, we appreciate that some legal practitioners take a contrary view.
"Given the importance of this issue to IPSs that will, in due course, seek registration as charities, the commission decided to raise the matter with the Attorney-General in his role as protector of charities. Following that dialogue, we are confirmed in our view.
"Any IPSs with power to pay interest or dividend on shares will not be registered by the commission. If they have never been charitable, they will be able to continue to operate as non-charitable organisations."
Malcolm Lynch, a partner at the law firm Wrigleys, said a very small number of IPSs would be affected and would have to either appeal or comply before the registration date.
He said that most IPSs had not paid dividends on share capital in any case, so were unlikely to suffer if they were forced to remove the power to do so.
"It's an issue for these organisations, because if HM Revenue & Customs takes the view that they were never charitable, they could face a large retrospective tax bill," he said. "However, since HMRC agreed to register them as charities, that would seem harsh."
In the past two years, the number of industrial and provident societies set up to issue interest-bearing shares has increased by almost 150 per cent. Several of these organisations have expressed interest in registering as charities.