An industrial and provident society (IPS) is a body corporate registered for carrying on any industries, businesses, or trades specified in or authorised by its rules.[1]
The members of a society benefit from the protection of limited liability much like other corporate forms, but unlike companies for example, each member will normally only have one vote at a General Meeting regardless of their shareholding. The governance of a society is therefore democratically oriented rather than financially oriented.
The legal form originated in the United Kingdom of Great Britain and Ireland and became the traditional legal form taken by trading organisations with democratic governance including:
co-operatives (which trade for the benefit of their members);
societies for the benefit of the community (which trade for the benefit of the broader community).
The term industrial and provident society is still used in statute in New Zealand,[2] the Republic of Ireland[3] and within the UK in Northern Ireland.[4]
The Industrial and Provident Societies Act was passed by the parliament of New Zealand in 1908, and forms the basis of the law on societies in New Zealand.
In 2006, the Friendly and Industrial and Provident Societies Act 1968 (Audit Exemption) (Amendment) Order 2006[6] increased the audit exemption threshold level for industrial and provident societies to £5.6 million. Also the Charities Act 2006 removed certain exemptions of charitable IPSs in England and Wales. From that point, charitable IPSs had to register with both the FCA and the Charity Commission, except registered social landlords, who register with the Tenant Services Authority.[7]
Since 2010 the IPS laws explicitly name co-operatives in their titles.
In 2011, the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011[8] increased the maximum shareholding limit, changed the date of submission of the annual return, permitted children to be members, and allows the publication of unaudited interim accounts.[9]
In January 2012, the UK Prime Minister, David Cameron announced a project to consolidate all the legislation applicable to industrial and provident societies to be passed by 2015.[10] There was some uncertainty as to how far new developments would address the problems with the legislation.[11] Cameron stated, "We know that breaking monopolies, encouraging choice, opening up new forms of enterprise is not just right for business but the best way of improving public services too." Ed Mayo, Secretary General of Co-operatives UK, welcomed the project.[10] In mid-2012, revision of laws for co-operative was in its early stages.[12] Some felt the reforms did not deal with certain key problems.[11]
Changes to the registration system under the Financial Services Act 2012 which splits the Financial Services Authority into the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) took effect on 1 April 2013.[13] The registration function for societies was transferred to the FCA while the prudential regulation of credit unions was transferred to the PRA.[14] In September 2013, the English and Scottish Law Commissions published a draft consolidation bill and related documents for consultation.[15] Earlier that year, the UK Treasury, which is the department responsible for legislation for societies, published a series of proposals to increase the holding limit for withdrawable share capital in societies to at least £31,000, to apply insolvency rescue procedures to societies, and to change the rules applicable to their registers of members.[16] Draft regulations linked to that consultation were also available, having been circulated to a small number of people. Those drafts and other materials, including a private member's bill to liberalise the use of share capital by societies presented to the UK House of Lords were explained and brought together online.[17]
In the United Kingdom, IPSs are registered (but not regulated) by the Financial Conduct Authority (FCA), which took over the job from the Registrar of Friendly Societies when it was part of the Financial Services Authority (FSA) (both being supervised by the Treasury). Society registration is quite separate from the FCA's function of regulating financial institutions.[18]
Unlike a company limited by guarantee (another form favoured by businesses not primarily motivated by profit), an IPS always has a share capital. However, in an IPS the shares cannot usually increase in value beyond their nominal amount. Often, no interest or dividend is payable on them at all, and they are voting shares only. The capital of an IPS is therefore not made up of equity shares like those in a company limited by shares, which appreciate or fall in value with the success of the enterprise that issues them. Rather they are par-value shares, which can only be redeemed (if at all) at face value. The profits and losses of an IPS are thus the common property of the members. The share often acts as no more than a "membership ticket", and voting is on a "one member one vote" basis.
Working capital is usually provided through non-voting shares, and these are often withdrawable. Withdrawable share capital is an unusual form of finance which is treated as equity but may be withdrawn subject to specified conditions. It has the great advantage of being exempt from the Financial Services and Markets Act, which makes the sale of securities to the public a criminal offence without compliance with expensive and onerous regulations. However, an IPS with withdrawable share capital is not allowed to carry on a banking business, presumably because a withdrawable share capital would make it impractical to ensure capital adequacy requirements are continuously met. The terms of society shares, whether withdrawable or not, may include the payment of interest on the capital, but this may only be paid out of profits.
The maximum individual withdrawable shareholding is currently set at £100,000 (although other IPSs may hold more shares than this). The limit used to include non-withdrawable shares, but this was removed in 2011.[25][26] Since 2006, the FCA has been willing, in principle, to permit co-operative societies to have non-user investor members providing certain conditions are met and this, in combination with the removal of the £100,000 holding limit for non-withdrawable shares, may open up wider possibilities for co-operatives to raise finance from investors while maintaining user control.[27]
Since 2012, the use of withdrawable share capital by community benefit societies has been commonly described as 'community shares'. Over £150 million has been raised in community shares by over 440 community owned businesses across the UK. Recent research has shown that this model has proven very resilient, with 92% of all businesses who have raised capital through community shares still trading to date.[28] As community share offers are exempt from formal regulation, the Community Shares Unit (CSU) oversees best practice standards, intelligence and development of the community shares market. The CSU is a formal partnership between Co-operatives UK, Locality and The Plunkett Foundation.
In depth guidance on the legislation and best practice standards on running community share offers is available from The Community Shares Handbook.[29]
