Industrial and Provident Society
Encyclopedia
An industrial and provident society (IPS) is a legal entity for a trading business or voluntary organisation in the United Kingdom
, the Republic of Ireland
, and New Zealand
. Recent UK legal developments include the Co-operatives and Community Benefit Societies Act 2003, which introduced the concept of an asset lock which an industrial and provident society can introduce to prevent specified assets being used for unintended purposes. A company with such a rule is a community benefit society.
Consumer, agricultural and housing co-operatives, working men's club
s, Women's Institute markets, allotment societies, mutual
investment companies, friendly societies and housing association
s usually incorporate as IPSs, as do some social enterprise
s. This process is facilitated by the existence of "model rules" developed by various federal bodies, which reduce the legal costs. Credit unions and building societies, which sprang from the same roots, are now governed by specific legislation.
IPSs fall into two categories:
(FSA), which took the job over from the Registrar of Friendly Societies (both being supervised by the Treasury). Note that IPS registration is quite separate from the FSA's function of regulating financial institutions.
Such businesses have been controlled in the past by the Industrial and Provident Societies Partnership Act 1852 and the Industrial and Provident Societies Act 1893. The legislation in the Republic of Ireland
is based on modifications of the UK Industrial and Provident Societies Act 1893.
Nowadays in the UK they fall under Co-operative and Community Benefit Societies and Credit Unions Act 1965
(as renamed by section 2 of the Co-operative and Community Benefit Societies and Credit Unions Act 2010
; formerly the Industrial and Provident Societies Act 1965) and subsequent legislation to the present day such as The Friendly and Industrial and Provident Societies Act 1968 (Audit Exemption) (Amendment) Order 2006 - Statutory Instrument 2006 No. 265 (which increased the audit exemption threshold level for industrial and provident societies to £5.6m).
Some industrial and provident societies that exist for community benefit are charitable. Under British law they are exempt charities
and do not need to register with the regulator for charities (in England and Wales
the Charity Commission
).
However, when the Charities Act 2006
comes into effect, that exemption is removed from all charitable IPSs in England and Wales.
From that point, charitable IPSs have to register with both the FSA and the Charity Commission, except Registered Social Landlords, who register with the Tenant Services Authority.
, 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 shareholding is currently set at £20,000 (although other IPSs may hold more shares than this).
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.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, the Republic of Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
, and New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
. Recent UK legal developments include the Co-operatives and Community Benefit Societies Act 2003, which introduced the concept of an asset lock which an industrial and provident society can introduce to prevent specified assets being used for unintended purposes. A company with such a rule is a community benefit society.
Categories of IPS
IPSs may in general conduct any legal business except that of investment for profit.Consumer, agricultural and housing co-operatives, working men's club
Working men's club
Working men's clubs are a type of private social club founded in the 19th century in industrial areas of the United Kingdom, particularly the North of England, the Midlands and many parts of the South Wales Valleys, to provide recreation and education for working class men and their families.-...
s, Women's Institute markets, allotment societies, mutual
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
investment companies, friendly societies and housing association
Housing association
Housing associations in the United Kingdom are independent not-for-profit bodies that provide low-cost "social housing" for people in housing need. Any trading surplus is used to maintain existing homes and to help finance new ones...
s usually incorporate as IPSs, as do some social enterprise
Social enterprise
A social enterprise is an organization that applies business strategies to achieving philanthropic goals. Social enterprises can be structured as a for-profit or non-profit....
s. This process is facilitated by the existence of "model rules" developed by various federal bodies, which reduce the legal costs. Credit unions and building societies, which sprang from the same roots, are now governed by specific legislation.
IPSs fall into two categories:
- bona fide co-operatives – these trade for the mutual benefit of their members, and the Registrar will judge the legality of their action by reference to co-operative principles (case law is very thin on the ground compared with that for companies);
- societies for the benefit of the community – these trade to benefit the broader community, and the Registrar will refer to charityCharitable organizationA charitable organization is a type of non-profit organization . It differs from other types of NPOs in that it centers on philanthropic goals A charitable organization is a type of non-profit organization (NPO). It differs from other types of NPOs in that it centers on philanthropic goals A...
law. Societies for the benefit of the community are granted charitable status by the taxation authority, HM Revenue and CustomsHer Majesty's Revenue and CustomsHer Majesty's Revenue and Customs is a non-ministerial department of the UK Government responsible for the collection of taxes and the payment of some forms of state support....
, rather than the Charity CommissionCharity CommissionThe Charity Commission for England and Wales is the non-ministerial government department that regulates registered charities in England and Wales....
(in England and WalesEngland and WalesEngland and Wales is a jurisdiction within the United Kingdom. It consists of England and Wales, two of the four countries of the United Kingdom...
).
Regulation
IPSs are regulated by the Financial Services AuthorityFinancial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
(FSA), which took the job over from the Registrar of Friendly Societies (both being supervised by the Treasury). Note that IPS registration is quite separate from the FSA's function of regulating financial institutions.
Such businesses have been controlled in the past by the Industrial and Provident Societies Partnership Act 1852 and the Industrial and Provident Societies Act 1893. The legislation in the Republic of Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
is based on modifications of the UK Industrial and Provident Societies Act 1893.
Nowadays in the UK they fall under Co-operative and Community Benefit Societies and Credit Unions Act 1965
Co-operative and Community Benefit Societies and Credit Unions Act 1965
The Co-operative and Community Benefit Societies and Credit Unions Act 1965 is an Act of Parliament in the United Kingdom. It was enacted as Industrial and Provident Societies Act 1965 and renamed by section 2 of the Co-operative and Community Benefit Societies and Credit Unions Act 2010....
(as renamed by section 2 of the Co-operative and Community Benefit Societies and Credit Unions Act 2010
Co-operative and Community Benefit Societies and Credit Unions Act 2010
The Co-operative and Community Benefit Societies and Credit Unions Act 2010 is an Act of the Parliament of the United Kingdom that received Royal Assent on 18 March 2010....
; formerly the Industrial and Provident Societies Act 1965) and subsequent legislation to the present day such as The Friendly and Industrial and Provident Societies Act 1968 (Audit Exemption) (Amendment) Order 2006 - Statutory Instrument 2006 No. 265 (which increased the audit exemption threshold level for industrial and provident societies to £5.6m).
Some industrial and provident societies that exist for community benefit are charitable. Under British law they are exempt charities
Exempt charity
An exempt charity is an institution established in England and Wales for charitable purposes which is exempt from registration with, and oversight by, the Charity Commission....
and do not need to register with the regulator for charities (in England and Wales
England and Wales
England and Wales is a jurisdiction within the United Kingdom. It consists of England and Wales, two of the four countries of the United Kingdom...
the Charity Commission
Charity Commission
The Charity Commission for England and Wales is the non-ministerial government department that regulates registered charities in England and Wales....
).
However, when the Charities Act 2006
Charities Act 2006
The Charities Act 2006 is an Act of the Parliament of the United Kingdom intended to alter the regulatory framework in which charities operate, partly by amending the Charities Act 1993.-Provisions:...
comes into effect, that exemption is removed from all charitable IPSs in England and Wales.
From that point, charitable IPSs have to register with both the FSA and the Charity Commission, except Registered Social Landlords, who register with the Tenant Services Authority.
Forms of financial capital
Unlike a company limited by guaranteeCompany limited by guarantee
In British and Irish company law, a private company limited by guarantee is an alternative type of corporation used primarily for non-profit organisations that require legal personality. A guarantee company does not usually have a share capital or shareholders, but instead has members who act as...
, an IPS generally has a share capital
Share capital
Share capital or issued capital or capital stock refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value...
. 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
Common ownership
Common ownership is a principle according to which the assets of an enterprise or other organization are held indivisibly rather than in the names of the individual members or by a public institution such as a governmental body. It is therefore in contrast to public ownership...
of the members. The share typically acts as a "membership ticket", and voting is on a "one member one vote" basis. The maximum individual shareholding is currently set at £20,000 (although other IPSs may hold more shares than this).
It may be withdrawable share capital, an unusual form of finance which is treated as equity
Ownership equity
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
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
Prospectus (finance)
In finance, a prospectus is a document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements,...
. 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.
See also
- Community interest companyCommunity interest companyA community interest company is a new type of company introduced by the United Kingdom government in 2005 under the Companies Act 2004, designed for social enterprises that want to use their profits and assets for the public good...
- Co-operative and Community Benefit Societies and Credit Unions Act 2010Co-operative and Community Benefit Societies and Credit Unions Act 2010The Co-operative and Community Benefit Societies and Credit Unions Act 2010 is an Act of the Parliament of the United Kingdom that received Royal Assent on 18 March 2010....
External links
- Industrial & Provident Societies, Financial Services Authority
- FSA Mutuals Public Register - searchable, Financial Services Authority
- Industrial and Provident Societies Act 1965 (c. 12) as amended
- Industrial and Provident Societies Act 2002 as enacted
- Co-operatives and Community Benefit Societies Act 2003 as enacted