Community Benefit Societies & The Asset Lock

In recent years Community Benefit Societies (BenComm's) in England & Wales and Northern Ireland have had the option of introducing an 'asset lock' within their legal framework which ensures, that upon dissolution or amalgamation, the assets will be retained permanently for the benefit of the community. This also prevents the possibility of the assets being redistributed to members upon a conversion from a Society to a Company.

Industrial & Provident Society Forms (Bona Fide & BenComm)

An Industrial & Provident Society (IPS) can take one of two distinct forms, namely that of a Bona Fide Co-operative or a Society for the Benefit of the Community (BenComm).

A Society may register as an IPS if it:

(1) carries on any industry, business or trade, whether retail or wholesale AND

(2) is either one of the two aforementioned forms.

But what is the difference between a Bona Fide Co-operative and the BenComm?

Bona Fide Co-operative

A Bona Fide Co-operative is an incorporated society which acts for the mutual benefit of all of its members.

Whilst there is no statutory definition of a Bona Fide Co-operative certain criteria has been laid down defining this form:

(1) Members' benefits in the main stem from their participation in the business of the society

(2) Control of the society is vested in members equally, through the principle of 'one person, one vote'

(3) return on capital does not exceed a rate necessary to retain sufficient capital to carry out the society's objectives

(4) Any profits after payment of interest will, if distributable amongst the members, be distributed in proportion to the extent to which members have traded with or taken part in the society's business

(5) Membership will not be restricted artificially with the object of increasing the value of proprietary rights and interests.

The criteria is designed to ensure that members interest in the society is not based solely on the amount of capital they have put into the organisation.

Example: members of a social club serving current and former transport workers. The members interest in the club is a genuine community one shared with fellow and former work colleagues. A person does not join with the sole aim of obtaining some financial return, although that may occur in some circumstances.

Indeed, the legislation governing IPS states that a Co-operative society does not include a society which carries on, or intends to carry on, business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with, or lent to, the society or any other person. Such co-operative entities would likely incorporate as a company instead.

Society for the Benefit of the Community (BenComm)

Unlike the Bona Fide form, a BenComm will act for the benefit of the community rather than just its members.

Profits will not be distributed among members but will be returned to the community. A BenComm is one of the many legal structures employed by Social Enterprises. A BenComm may also be a charity although this will depend on its constitution and objectives.

Special reasons must be given as to why the society should not be registered as a company. Its rules should also prohibit the distribution of assets among members.

Example: Housing Associations are often registered as BenComms as they serve the interests of the wider community rather than the narrow spectrum of their membership.



Both forms must adhere to the general conditions relating to societies as governed by the Industrial & Provident Societies Act (NI) 1969 (The Co-Operative and Community Benefit Societies Act 1965 in England & Wales - formerly referred to as Industrial & Provident Societies Act 1965)

Reform of Industrial & Provident Societies

Much has been made of the proposed reforms affecting the Credit Union movement in Northern Ireland (quite understandable given its size) but to date discussion has been relatively muted regarding reform of co-operatives and community benefit societies (which have a significant presence among the housing and agricultural sectors here). This is likely to change with the publication later in the year of a joint Treasury/DETI consultation on Industrial & Provident Society (IPS) reform.

Meanwhile, two pieces of legislation have been introduced to give effect to the reform of Industrial & Provident Societies in Britain. With any reforms in Northern Ireland likely to mirror those changes across the water it is worth taking a closer look at the two legislative documents.

1. Legislative Reform (Industrial & provident Societies and Credit Unions) Order 2010

Some of the key reforms include:

- An end to the minimum age restrictions for membership of a society.
- Reducing the age limit to become an officer to 16
- Removal of the £20,000 limit on any members maximum shareholding. The restriction has removed the limit for non-withdrawable shares. Withdrawable shares are still subject to the maximum limit.
- allowing a society to choose its own year end date
-facilitating the easier dissolution of societies by easing the voting requirements to dissolve.

2. Co-operative And Community Benefit Societies And Credit Unions Act 2010

Some of the key reforms include:

-renaming the previously titled Industrial & provident Society Acts to the Co-operative and Community Benefit Societies Acts (In effect a brand change).
- requiring all new Industrial & Provident Societies to be registered as either a co-operative or community benefit society.
- giving HM Treasury the power to apply to IPS, with appropriate modifications, company law on investigation of companies, company names and dissolution and restoration to the register.

The reforms in a Northern Ireland context:

The removal of the limit on non-withdrawable shares and the flexibility regarding year ends would be of benefit to any agricultural co-operative operating in Northern Ireland.

The removal of the limit would allow members of agricultural co-operatives to invest greater sums of money to expand the business and increase profitability. Agricultural Co-operatives would also be able to link their financial year end to the agricultural cycle which would make greater financial and commercial sense than the current arrangements.

With the name changes and increased Treasury powers to apply company law, the Government seeks to address concerns by bringing the Industrial & Provident Society format into the 21st century. It is hoped that these changes will add new vitality to a legal structure which has fallen in popularity in recent years.