Industrial and Provident Societies (IPS)

An Industrial and Provident Society is an incorporated body and therefore its members benefit from limited liability. There are two types of IPS:

  • a bona fide co-operative society; and
  • a society for the benefit of the community.

Industrial and Provident Societies are regulated by the Financial Services Authority (FSA) and must register with the Mutual Societies Registration section of the FSA. In general regulation is lighter than for Limited Companies in general and the accounting requirements far less onerous.

Following the Co-operative and Community Benefit Societies and Credit Unions Act 2010, the names of industrial and provident societies were changed as follows:

  • Bona fide Co-operative Societies are now known as Co-operative Societies;
  • Benefit of the Community Societies are now known as Community Benefit Societies. 

It is not yet known when these changes will come into effect.

An IPS is run by its members and there are several sets of model rules.  Profits must generally be ploughed back into the business. Where part of the profits are used for another purpose then that purpose must be similar to the main aim of the society, for example for philanthropic or charitable purposes. Where the rules of the IPS allow assets to be sold, the proceeds must be put into its business activities.  A change in the law has now made it possible for a non-charitable IPS to have an “asset lock”, similar to a Community Interest Company, to ensure that its assets are always used to benefit the community.

Up until now an IPS whose aims are wholly charitable is considered an ‘exempt charity’ - it cannot register with the Charity Commission and is not regulated by them, but it is generally bound by charity law.  Following the March 2010 Act, Community Benefit Societies with an income over £100,000 will register with the Charity Commission. This change is likely to happen some time in 2011.  A charitable IPS already has an “asset lock” under charity law.

a) Bona Fide Co-operative Society
This is a business owned and democratically controlled by its employees and founded on seven basic principles, one of which is Concern for the Community. Although a co-op must make a surplus to be successful other motives may be equally important; for example, a recycling co-op will be based on concern for the environment. A co-operative must have at least two members.
 
A Credit Union is a specialist form of co-operative, regulated by an act of parliament covering financial services. It is a financial co-operative whose savers are its members. Money is saved in a common fund and can be used to make low interest loans to members. A Credit Union is run by a Board of Directors elected from among the membership at the AGM. There are other specialist co-operatives such as housing co-ops which are covered by separate regulation.

b) Community Benefit Society
A Community Benefit Society (called a Society for the Benefit of the Community until a recent change in legislation) must show that its activities benefit the wider community rather than simply its members. It also has to demonstrate a ‘special reason’ for registration as an IPS rather than as a company.