Going for ever: ‘industrial and provident societies’

Tomorrow we say farewell to the Industrial and Provident Societies Act, the legislation which has provided a legal framework for the vast majority of Britain’s coops for over 110 years.  We welcome instead the new Co-operative and Community Benefit Societies Act.

It was two early cooperative pioneers (both members of the group known as the Christian Socialists) J M F Ludlow and Edward Vansittart Neale who shepherded the first IPSA through Parliament in 1852, giving cooperative societies at least some of the legal protection which they needed to develop.  In hindsight it might have been even better if Neale and Ludlow could have arranged for the legislation to be called the Co-operatives Act but, never mind, we’ve learned to live with ‘industrial and provident societies’ over the years and in fact I will almost mourn their disappearance into history.

Don’t get too excited,  however: the new law is simply an act consolidating existing legislation, and won’t introduce any new powers for cooperatives.  I wrote about the change earlier in the year for the Guardian: it’s here, if you’re interested.

The legal costs of incorporation a coop

I’m participating later today as a panellist in the online discussion being organised by the Guardian, linked to the theme of my current series of articles Can coops compete?.

Three of this series are now up on the Guardian’s website, the latest being an assessment of whether coops are held back in comparison with conventional business by legal constraints. You’ll see that the assessment back from those I interviewed for the piece is generally an upbeat one.

I do have a residual concern, however, that it is still much more expensive to register a new cooperative or community benefit society under the Industrial & Provident Societies Act (IPSA) than it would be a  company under the Companies Act. (When I used company legislation recently to register a community-run development trust for the town where I live, I was able to do the incorporation for almost nothing by adapting the Charity Commission’s model Company Limited by Guarantee rules).

Co-operatives UK uses its management fees on new IPSA incorporations as a revenue generator, a practice it took over from the old Industrial Common Ownership Movement. (ICOM’s practice meant that many new workers’ coops joined for their first ‘free’ year and then had nothing more to do with the organisation, which didn’t really help build a strong movement.)  Even though many newly incorporating coops can get their legal fees grant-funded (for example through the Co-operative Enterprise Hub) I would prefer to see Co-operatives UK move away from ‘front-end loading’ costs on new coops in this way.

At least Co-operatives UK is now reviewing these charges. I understand that the cost of registering a new IPSA through them is about to be standardised at £250 (£500 if significant advice is required).  If incorporation is done through a cooperative business adviser, the cost will be £150.  This is a useful reform, even if IPSA registration will still remain more costly than Companies Act incorporation.

Going up: limit for individual investments in coops to be £100,000

The Treasury announced today an important change potentially affecting all cooperatives and ‘bencoms’ (societies for the benefit of the community) registered under the Industrial & Provident Societies Act. From next year, the maximum amount which an individual member can invest through the usual ‘withdrawable share capital’ route is to go up from the current £20,000 to £100,000.

There’s been criticism for some time that £20,000 is too low (the threshold was last increased in 1994).  Some agricultural cooperatives in particular have argued that the number of farmer-members in a typical agri-coop is small relative to the amount of capital that can be required,  and that therefore a £20,000 limit unduly restricts their development.  Co-operatives UK has also warmly welcomed the increase in the limit.

The increase to £100,000 will potentially apply to the rapidly growing number of community share issues, including those for community pubs, village shops, and community-led renewable energy projects.  Major projects using community share issues could now find it possible to raise quite significant amounts of capital.

The fundamental cooperative principle that all shareholder-investors have one vote regardless of how much they have invested remains, of course. But the new £100,000 limit will be discretionary and each individual coop and bencom will need to discuss whether they really want to have investments of this size held by individuals in their business.  One point to consider is whether, even with a one-member-one-vote rule, big investors might in practice be able to make their views count for more.  Another is the cash flow implications for a business if an individual with a major investment requested the return of their money.

The change is coming in during 2014.  The government has also tabled today in parliament a consolidation act covering coops and bencoms, and this is expected to get royal assent next year.  A consolidation act merely tidies up previous legislation (there are no new provisions) but is still a welcome move.

The Treasury report is available online here.