UK Cooperative Law

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Overview by Ian Snaith:

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1. The Nature of UK Co-operative Law

"In the UK, a body wishing to function as a co-operative is free to use any legal form it chooses. That includes registering under the Companies Act 2006 or the Limited Liability Partnerships Act 2000 or operating as a partnership under the Partnership Act 1890, subject to restrictions on the use of the word “co-operative” in an organisation's name. The use of the word "co-operative" in the name of a business registered as a company or a limited liability partnership (LLP) requires the approval of the Secretary of State for Business Innovation and Skills. In practice, this allows the Registrar of Companies to apply the test used by the FSA for the registration of an industrial and provident society as a co-operative before a company or LLP registration is permitted with the word "co-operative" in the name. The same obligation is imposed on anyone using the word in the name of an unregistered partnership established by agreement between individuals without registration under the Partnership Act 1890 (Companies Act 2006 ss 55(1) & 1194(1) and the Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations (SI 2009/2615) schedule 1).

The Co-operative and Community Benefit Societies Act 2014 (“CCBSA 2014”) provides a legal structure specifically designed for co-operatives. The Financial Conduct Authority (FCA) is responsible for the registration of co-operative and community benefit societies – a function similar to that performed by the Registrar of Companies for companies registered under the Companies Act 2006. Further information about the FCA and its role as the registry for mutual societies can be found on its website at http://www.fca.org.uk/firms/firm-types/mutual-societies and in the information that it publishes on that site and in print.

Credit unions, a form of savings and loan co-operative, must register under the CCBSA 2014 as adapted by the Credit Unions Act 1979 and are prohibited from otherwise registering under the CCBSA 2014. Similarly, an organisation using any other legal structure (including the European Co-operative Society form) is prohibited from using the words “credit union” as part of its name (Credit Unions Act 1979, ss 1 to 3 ). Like other bank businesses, credit unions are also subject to regulation by the Prudential Regulation Authority (PRA) as authorised deposit takers under the Financial Services and Markets Act 2000. For that reason, this report makes no further reference to the law governing credit unions.

As is generally the case in UK business organisation law, the emphasis of the CCBSA 2014 is on providing default rules and so maximising the freedom of those using the legal structure to develop and apply their own rules. Subject to compliance with the FCA's view of the nature of a bona fide co-operative society or a community benefit society, the governance structure, rights and duties of members, elements of the capital structure and rules about the return to members can be dealt with by the rules of each society. The “rules” of a registered society are the governing constitutional document for registered societies. They are equivalent to the articles of association of a UK company, the charter or by-laws of a US corporation. Such documents are commonly referred to as the “statutes” of an organisation in continental Europe but in the UK that word is used for primary legislation. This freedom for organisations to devise their own provisions within the framework of legislation reflects the system applicable to companies and partnerships in the UK.

2. The 2014 Changes to UK Co-operative Law

A co-operative society is an organisation that is owned and operated by and for the benefit of its members, who may be service users, customers, employees or suppliers. A Community benefit society is an organisation that is primarily run for the benefit of the community at large, rather than just for the benefit of the organisation’s members.

As societies, they are subject to lighter regulation than limited companies and the accounting requirements are less rigid.

The legislation governing co-operative and community benefit societies (formerly known as industrial and provident societies) originates in law dating back to the 19th century. Until recently, the primary source of legislative provision was contained in the Industrial and Provident Societies Act 1965. This Act sought to consolidate previous legislation and had been subject to a number of amendments and supplements over the years. The result of these amendments and supplements was an area of law that was extremely complex and difficult to navigate.

Recognising the importance of co-operative and community benefit societies to the diversity and strength of the UK economy, the Government announced in January 2012 that it once again intended to consolidate the law into a single Act. This proposal was taken forward by the Law Commission for England and Wales and the Law Commission for Scotland, which published a joint consultation on 26 September 2013. The consultation ended on 15 November 2013, and the resultant report and draft Bill were laid before Parliament on 19 December 2013. The Bill ended its passage through the legislature and received Royal Assent on 14 May 2014. It entered into force on 1 August 2014 as the CCBSA 2014.

As a consolidating statute, the primary aim of the Act is to reproduce the effect of the existing legislation but to bring the law together in a more logical, accessible, clear and modern form. It does not seek to effect the introduction of any new policy or to make substantial changes to the legislative requirements.


Having said that, it does make a few notable changes and takes account of secondary legislation introduced by the Government earlier in 2014 to work alongside the Act, which together have the effect of:

 Increasing from £20,000 to £100,000 the amount of withdrawable share capital that a society's rules can permit an individual or company to hold in a society (CCBSA 2014, s 24);

 Allowing troubled societies to enter insolvency rescue proceedings (The Industrial and Provident Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 (SI 2014/229), as amended by The Co-operative and Community Benefit Societies and Credit Unions Act 2010 (Consequential Amendments) Regulations 2014 (SI 2014/1815), as amended by The Co-operative and Community Benefit Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 (SI 2014/1822));

 Giving the Financial Conduct Authority additional powers to investigate societies (The Cooperative and Community Benefit Societies and Credit Unions (Investigations) Regulations 2014, (SI 2014/574));

 Making the directors and committee members of a society subject to the disqualification provisions under the Company Directors Disqualification Act 1986 (Company Directors' Disqualification Act 1986, s22E inserted by s 3 of the The Co-operative and Community Benefit Societies and Credit Unions Act 2010 commenced from 14th April 2014 by The Cooperative and Community Benefit Societies and Credit Unions Act 2010 (Commencement No. 2) Order 2014 (SI 2014/183);

 Making electronic submission of registration documents simpler (CCBSA 2014, s 3(1)(b)). CCBSA 2014 extends to England, Wales and Scotland, but it does not apply to Northern Ireland.

On 2 October 2014 the Financial Conduct Authority (‘FCA’) published a consultation paper on guidance it intends to publish on the exercise of its functions related to societies registered under the CCBSA 2014, a draft of which was attached. The consultation closed on 28 November 2014 and the FCA expects to publish its final guidance in the early part of 2015.

The draft guidance can be accessed by clicking on the following link: http://www.fca.org.uk/static/documents/consultation-papers/cp1422.pdf


3. The Key Features of UK Co-operative Law from 2014

3.1. Summary of the main features of UK Co-operative and Community Benefit Society Law

A co-operative or community benefit society is registered on the basis of being and remaining either a co-operative or a community benefit society. Registration is with the Financial Conduct Authority (FCA). That function is separate from the FCA's role as the regulator of financial services firms and involves ensuring that societies conform with the registration requirements.

A registered society is a corporate body with perpetual succession and its members enjoy limited liability for business debts. Contractual formalities and powers are broadly similar to those applicable to companies. Societies are largely governed by their rules which are required to deal with certain matters and which contractually bind the society and its members. Their accounts must be published and are filed with the Mutual Societies Register of the FCA.

Member control of the society is a central feature of a co-operative society and should involve some community of interest among the members. Control of the society by the members should not be by reference to their level of shareholding. Directors or officers are elected, directly or indirectly, by members under the society's rules. Co-operatives benefit their members. Community benefit societies benefit a community. Both usually operate businesses.

Limitation on the return available to share capital is a central concern for both co-operative and community benefit societies. Society shares may be withdrawable or transferable or neither. Interest on society shares should be limited and, in a co-operative, any surplus distribution to individual members should be proportionate to their transactions with the society as buyers, sellers or employees and not their capital stake. In the case of community benefit societies there should be no such distribution. Community benefit societies may register as charities and may choose to restrict the use that can be made of their assets.

A number of means of consolidation and transformation are open to societies on the basis of passing appropriate resolutions at members' meetings so that they can transfer their engagements with or without assets, amalgamate and convert into companies."