Industrial and Provident Society

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Corporate status

Incorporated

Terminology: governing document

"Rules" or "Rule Book".

Terminology: governing body

"The committee of management", "the committee" or the "Board of Directors" although the rules may use some other term to describe the governing body.

Management/governance structure

Essentially two-tier, with a committee of management accountable to a wider membership (sometimes referred to as a "participating membership"). Members will typically hold voting rights at general meetings and will elect all or some of the committee.

Further embellishments may be added to this basic structure, e.g. an executive committee (smaller than the governing body, perhaps made up of honorary officers and senior staff), or a members' council, which may meet more frequently than the full membership and supervise the work of the committee.

However, it is possible to create a single-tier structure by simply stating that the society shall be managed by general meetings.

All IPSs are required to have a secretary, usually described as the senior administrator. This person may also be a member or director, but need not be. In funded community and voluntary organisations, the post of secretary will often form part of the job description of a member of staff.

Membership

All IPSs must issue shares, so someone becomes a member by acquiring the minimum stipulated shareholding (which will often be one worthless share).

There are two types of IPS: the bona fide co-operative, and the society for the benefit of the community.

In a co-operative, eligibility for membership will be based on sharing a common economic relationship with the society - employees in a worker co-operative, suppliers of goods or services in a marketing co-operative, tenants in a housing co-operative, etc. The eligibility criteria will feature within the registered rules.

In a society for the benefit of the community, eligibility for membership may be detailed in the society's rules, being subject to specified criteria (e.g. living or working in the area of benefit, or sharing a common ethnic origin, or sharing an interest in a particular sport); or the rules may simply say that "anyone who supports the objectives" may apply for membership. IPS legislation does not permit membership to be available to under-16s.

Members may be individuals or other corporate bodies or a combination of the two (unincorporated organisations cannot themselves become members but the rules may allow such bodies to nominate individuals to membership).

In a co-operative, eligibility for membership will be automatic for people who meet the specified criteria. In a society for the benefit of the community, admission to membership is usually at the discretion of the directors, but an "open membership" system may apply where criteria are laid down, e.g. anyone who lives on such-and-such an estate is eligible to become a member. The rules should always allow for the expulsion of members who act against the interests of the society.

An IPS must have a minimum of three members (except where the members are themselves IPSs, when the minimum is two). As an IPS must operate on the basis of a participating membership, it is unlikely to be an appropriate legal form for subsidiaries.

Governing legislation

Governed primarily by the Industrial and Provident Societies Acts 1965 to 2002, plus a number of other statutes applying to societies (e.g. the Insolvency Act, the Co-operatives and Community Benefit Societies Act 2003).

Charitable status available?

A society for the benefit of the community (but not a co-operative) may qualify as an exempt charity if it meets the necessary criteria.

Profit distribution permitted?

Profit distribution is only permitted in a co-operative (not a society for the benefit of the community) payments are made in the form of dividends. The rules will specify whether or not profit distribution is permitted. Although a society for the benefit of the community cannot distribute profits it can pay interest on shares.

Summary of advantages of being an Industrial and Provident Society

• Can raise equity by issuing shares (to members only)
• Can distribute profits to members (bona fide co-op only)
• Co-operative principles are enshrined in the rules
• Less onerous administration than Limited Company

Summary of the disadvantages of being an Industrial and Provident Society

• Not favoured by funding bodies as poorly understood
• Legislation not as up to date as for other legal forms (currently under review)
• Relatively expensive to register compared to other legal forms
• Limited to £20,000 investment per shareholder (currently under review)

 Examples of Use

The IPS co-operative form is the traditional legal vehicle for co-operative enterprises (particularly consumer, housing and agricultural co-operatives and credit unions) and working men's clubs. Any type of co-operative should be able to register as an IPS. 

The society for the benefit of the community is commonly used by certain sectors of the voluntary and community sector, e.g. housing associations, community transport groups, football supporters' trusts, allotment societies, the Royal British Legion, Rugby Union clubs, and Women's Institute market societies. Many Community Supported Agriculture organisations and Community owned shops are Industrial and Provident Societies.

As it is far easier and cheaper to register an IPS using model rules, the structure is most commonly adopted by organisations for whom such model rules are available. It is possible to register a "free draft" set of rules (i.e. rules that have been written specifically for the society) but this is more complex and costly.

As IPSs generally, and societies for the benefit of the community in particular, enjoy certain privileges regarding issuing shares to the public, the IPS form will often be attractive to social enterprises and not-for-profit organisations wishing to raise substantial funds from the public. For more information, case studies and resources relating to community share issues, visit the Community Share web site: http://www.communityshares.org.uk/

Participation Issues

As IPSs are inherently democratic and membership-based, encouraging an active membership is an appropriate method of promoting participation.

Otherwise IPSs are free to utilise most of the other common methods of encouraging participation, including profit distribution in appropriate circumstances.
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