Industrial and provident society

An industrial and provident society (IPS) was a legal entity for a trading business or voluntary organisation in the United Kingdom, the Republic of Ireland, and New Zealand. The name is still used in New Zealand, the Republic of Ireland and within the UK in Northern Ireland.

Recent legal developments in Great Britain include the Co-operative and Community Benefit Societies Act 2014, which has renamed these societies as co-operative or community benefit societies. From 1 August 2014 a new society has had to register as either a co-operative or a community benefit society rather than, as was the case previously, a society that meets either requirement. Societies already registered before that date remain registered under the 2014 Act and under ss 1 & 2 of the 2014 Act all three types of society – co-operative societies, community benefit societies, and societies already registered before 1 August 2014 – are referred to together as "registered societies". However, for administrative purposes the three types of society are categorised separately.

The Act applies to Great Britain but not Northern Ireland.

Categories of IPS

See Co-operative and Community Benefit Societies Act 2014 for information about the current law on these societies.

History 1965 to 2014

In 1965, an act of Parliament came into effect called the Industrial and Provident Societies Act 1965.

In 2006, the Friendly and Industrial and Provident Societies Act 1968 (Audit Exemption) (Amendment) Order 2006[1] 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.[2]

Since 2010 the IPS laws explicitly name co-operatives in their titles. The 'Industrial and Provident Societies Act 1965' was renamed 'Co-operative and Community Benefit Societies and Credit Unions Act 1965'.[3]

In 2011, the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011[4] 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.[5]

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.[6] There was some uncertainty as to how far new developments would address the problems with the legislation.[7] 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.[6] In mid-2012, revision of laws for co-operative was in its early stages.[8] Some felt the reforms did not deal with certain key problems.[7]

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.[9] The registration function for societies was transferred to the FCA while the prudential regulation of credit unions was transferred to the PRA.[10] In September 2013, the English and Scottish Law Commissions published a draft consolidation bill and related documents for consultation.[11] 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.[12] 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.[13]

In 2014, the Co-operative and Community Benefit Societies Act 2014 was given royal assent.

Regulation

IPSs were 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). Note that IPS registration is quite separate from the FCA's function of regulating financial institutions.

Such businesses have been controlled in the past by the Industrial and Provident Societies Partnership Act 1852, the Industrial and Provident Societies Act 1893, and the Industrial and Provident Societies Act 1965. The legislation in the Republic of Ireland is based on modifications of the UK Industrial and Provident Societies Act 1893.[14]

Legislation

Forms of financial capital

Unlike a company limited by guarantee, an IPS generally has a share capital. However, in a not-for-profit IPS the share capital may be limited to a nominal amount. Both types of IPS have a share capital, but it is usually 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 typically acts as a "membership ticket", and voting is on a "one member one vote" basis. The maximum individual withdrawable shareholding is currently set at £100,000 (although other IPSs may hold more shares than this). The Legislative Reform Order (Industrial & Provident Societies and Credit Unions) Order 2011 removed the limit for non-withdrawable shares.[15] Since 2006, the FSA has been willing, in principle, to permit 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.[16]

It may be withdrawable share capital, an unusual form of finance which is treated as equity but may be withdrawn subject to specified conditions, and is relatively cheap for small co-operatives to raise as it is exempt from certain regulations applicable to conventional share issues regarding the publication of a prospectus. 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.

Examples

Community benefit societies

Co-operatives

See also

References

External links

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