CBSs are as popular as ever, so this article explores the background and benefits to using a society to deliver your organisation's purposes.
Wrigleys Solicitors LLP have been advising on the use of registered societies for many years and are experts in this (somewhat niche) area of law. We have our own model rules for both charitable and non-charitable societies and this article (Uses of community benefit societies) sets out some examples of societies which have registered using these.
Community benefit societies have been around for a long time, although the terminology is still relatively new. They were previously known as industrial and provident societies, but changes in 2010 required industrial and provident societies to be registered as either co-operative or community benefit societies.
However, the substantive legislation has not changed since the 1850s. This does mean that some of the law in this area is moderately archaic, but their long history means that they are, at least, a tried and tested concept.
Difference between a co-operative and community benefit society
Co-operatives are formed primarily to benefit their own members, who will participate in the business of the society. They should aim to meet the criteria set out in the International Co-operative Alliance's Statement on the Co-operative Identity.
In contrast, community benefit societies reflect commitment to the wider community, with profits being ploughed back into the business, rather than being distributed to members.
In both cases, the society must exist for the purposes of carrying on an industry, business or trade.
Community benefit societies may or may not have a statutory asset lock, which limits what they can do with their assets.
Societies without the statutory asset lock may seek charitable tax status from HMRC. Charitable community benefit societies are currently exempt from registration with the Charity Commission, although this is expected to change at some point in the future.
The statutory asset lock and the ability to obtain exempt charitable status with the HMRC means the community benefit society can be an attractive form of structure to funders.
Advantages of being a community benefit society
There are three principal advantages to being a community benefit society:
- Firstly, the issue of withdrawable shares by community benefit societies benefit from exemptions to regulated activity and financial promotion prohibitions under the Financial Services and Market Act 2000. In short, this means that societies may issue withdrawable shares to the public, without needing to comply with the restrictions on financial promotions (such restrictions make public share offers very expensive for companies to undertake).
- Secondly, community benefit societies benefit from legislative provisions which mean that re-organisations, particularly mergers between societies, are relatively easy to do.
- Finally, many people are drawn to the idea of societies, because they offer a democratic structure, where membership is drawn from the community and each member has one vote, regardless of how many shares they own in the society.
In order to register as a society, you must submit a set of rules and application form to the Financial Conduct Authority, together with the appropriate fee. Using model rules reduces this fee, which is payable on a sliding scale from £40 (using model rules with no amendments) to £950 (using model rules with ten or more amendments, or using bespoke rules). If you are using model rules, the sponsor of those rules must sign the application form.
Wrigleys has its own set of model rules, the Wrigleys Community Interest Society model rules. These are designed for societies with or without an asset lock, which may undertake a community shares issue at some point in the future.
The rules would be suitable for any social enterprise which is considering becoming a community interest company, but which is attracted to the community benefit society model because of the advantages outlined above. In many cases, societies choose this model because they want to do a community share issue.
Societies which want to seek charitable status would be able to use the Charity Law Association model rules. We are able to act as sponsor to any organisation which wishes to use these rules to register a charitable community benefit society.