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.

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).

In Great Britain the Co-operative and Community Benefit Societies Act 2014 has renamed these societies as co-operative or community benefit societies.

The term industrial and provident society is still used in statute in New Zealand, the Republic of Ireland and within the UK in Northern Ireland.

History 1852 to 2014

The first legislation basis for industrial and provident societies arose in the Industrial and Provident Societies Partnership Act 1852 (15 & 16 Vict. c. 31).

The legislation was subsequently amended and consolidated by the Industrial and Provident Societies Act 1862 (25 & 26 Vict. c. 87), the Industrial and Provident Societies Act 1876 (39 & 40 Vict. c. 45) and most recently the Industrial and Provident Societies Act 1893 (56 & 57 Vict. c. 39), which was amended by the (58 & 59 Vict. c. 30) and the (3 & 4 Geo. 5. c. 31) and still forms the basis of the law on societies in the Republic of Ireland.

The (No. 81) was passed by the New Zealand Parliament on 4 August 1908, and forms the basis of the law on societies in New Zealand.

In 1965, an act of Parliament came into effect called the Industrial and Provident Societies Act 1965 (c. 12).

The (SI 2006/265) 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. 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. The registration function for societies was transferred to the FCA while the prudential regulation of credit unions was transferred to the PRA. In September 2013, the English and Scottish Law Commissions published a draft consolidation bill and related documents for consultation. 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. 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.

A new Co-operative and Community Benefit Societies Act 2014 received royal assent in 2014.

Regulation

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.

Such businesses have been controlled in the past by the Industrial and Provident Societies Partnership Act 1852, the Industrial and Provident Societies Act 1893 (56 & 57 Vict. c. 39), 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 (56 & 57 Vict. c. 39).

Legislation

  • Industrial and Provident Societies Partnership Act 1852
  • Industrial and Provident Societies Act 1893 (56 & 57 Vict. c. 39)
  • Industrial and Provident Societies (Amendment) Act 1913
  • Industrial and Provident Societies Act 1965 (c. 12)
  • Industrial and Provident Societies Act 2002 (c. 20)
  • Co-operative and Community Benefit Societies Act 2003
  • Co-operative and Community Benefit Societies and Credit Unions Act 2010
  • Financial Services Act 2012
  • Co-operative and Community Benefit Societies Act 2014

Forms of financial capital: Community shares

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. 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.

Examples

Community benefit societies

  • Broadband 4 Rural North

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  • shares.coop - The Community Shares Marketplace
  • Community Shares directory
  • Industrial & Provident Societies , Financial Services Authority
  • FSA Mutuals Public Register - searchable, Financial Services Authority