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A co-operative society or a community benefit society registered under the Co-operative and Community Benefit Societies Act 2014 (CCBSA 2014) must comply with the Act’s registration conditions at the time of registration and while registered. The use of these societies as an alternative to a registered company was discussed here http://www.jordanpublishing.co.uk/practice-areas/company/news_and_comment/companies-are-not-the-only-option-for-uk-businesses#.VvqrikeYK7U back in 2014.
The Financial Conduct Authority (FCA) as registrar for societies, whether or not they are involved in the financial services sector, has wide discretion under CCBSA 2014 to decide whether a co-operative society is a ‘bona fide co-operative’ and whether a community benefit society’s business ‘is being, or is intended to be, conducted for the benefit of the community’ as section 2 of CCBSA 2014 requires.
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The book provides an analysis of Co-operative and Community Benefit Society law and incorporates...
Co-operatives UK is pleased to announce the upcoming publication of an Update and Supplement to...
The publication in November 2014 of the FCA’s long awaited Finalised guidance 15/12, Guidance on the FCA’s registration function under the Co-operative and Community Benefit Societies Act 2014 clarifies the FCA’s approach to the exercise of its discretion. The FCA Guidance is available at http://www.fca.org.uk/your-fca/documents/finalised-guidance/fg15-12. The March 2016 Updating Supplement to the Handbook of Co-operative and Community Benefit Society Law discusses its implications in some depth by cross referring to the chapters and numbered sections of the 2014 Handbook.
For co-operative societies, the FCA guidance places increased emphasis on the International Co-operative Alliance (ICA) Statement of co-operative identity, values and principles (http://ica.coop/en/whats-co-op/co-operative-identity-values-principles and paragraph 4.12 of the FCA Guidance). The ICA definition of a co-operative is the key criterion:
‘We generally consider something to be a bona fide co-operative society where it is 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.’
– FCA Guidance para 4.10.
Of the seven ICA Co-operative Principles, the four principles of open and voluntary membership, democratic member control, member economic participation and autonomy are emphasised by the FCA because they are easier than the other three to verify on the basis of available information. Profits can be distributed to co-op members by reference to their transactions with the society, such as selling to it, working for it, or buying from it.
The FCA emphasises the provisions of section 2(3) of CCBSA 2014, excluding from the definition of a co-operative any society which operates, or intends to operate, with the object of making profits mainly to pay interest, dividends or bonuses on money invested, deposited with, or lent to, the society or anyone else. These criteria are considered by the FCA when examining society rules (the equivalent of company articles), published accounts, and any other information available to the FCA.
For Community benefit societies the FCA view is that the conduct of the business must be ‘entirely’ and not merely ‘primarily’ for the benefit of the community and that ‘community benefit’ refers to the community at large and not only a defined community. The guidance particularly underlines the importance of avoiding any distribution of assets or profits to members of community benefit societies, apart from the payment of limited interest on members’ shares.
The Guidance offers welcome clarity and seeks to prevent the misuse of the society form to generate profits for investor owners while avoiding excessive rigidity.