In recent years I’ve been involved in two local community projects and have in each case taken on the responsibility for arranging for them to be legally incorporated. The first we registered as a charitable company limited by guarantee, using the model articles of association which the Charity Commission makes freely available on their website and adapting them slightly to meet our own requirements. We sent off the forms to Companies House together with, I think, a £15 cheque, and all was done and dusted very quickly.
This time we chose to register under the Co-operatives and Community Benefit Societies Act as a community benefit society (‘bencom’) and the experience has been altogether different. It cost very much more, and we had to make do with model rules which ideally we’d have slightly altered. And the process of registration as a charity with HMRC (bencoms do not fall under the Charity Commission’s remit and have to be separately registered with HMRC) was exceptionally tedious, taking in the end over seven months.
I’ve drawn (although only indirectly) on these personal experiences for a piece in this week’s issue of Co-operative News, which has come out with the headline The co-operative disadvantage: why the movement needs a level playing field. My opening sentences were designed to be provocative: who would voluntarily choose to register a new co-operative business or a new community organisation under the Co-operative and Community Benefit Societies Act when other legal models are arguably simpler, cheaper and more flexible?”
I expect my piece may be controversial with some, and I’m looking forward to seeing what letters come through in reply to CN. You can always start a debate here too, by commenting on this blog
I’m participating later today as a panellist in the online discussion being organised by the Guardian, linked to the theme of my current series of articles Can coops compete?.
Three of this series are now up on the Guardian’s website, the latest being an assessment of whether coops are held back in comparison with conventional business by legal constraints. You’ll see that the assessment back from those I interviewed for the piece is generally an upbeat one.
I do have a residual concern, however, that it is still much more expensive to register a new cooperative or community benefit society under the Industrial & Provident Societies Act (IPSA) than it would be a company under the Companies Act. (When I used company legislation recently to register a community-run development trust for the town where I live, I was able to do the incorporation for almost nothing by adapting the Charity Commission’s model Company Limited by Guarantee rules).
Co-operatives UK uses its management fees on new IPSA incorporations as a revenue generator, a practice it took over from the old Industrial Common Ownership Movement. (ICOM’s practice meant that many new workers’ coops joined for their first ‘free’ year and then had nothing more to do with the organisation, which didn’t really help build a strong movement.) Even though many newly incorporating coops can get their legal fees grant-funded (for example through the Co-operative Enterprise Hub) I would prefer to see Co-operatives UK move away from ‘front-end loading’ costs on new coops in this way.
At least Co-operatives UK is now reviewing these charges. I understand that the cost of registering a new IPSA through them is about to be standardised at £250 (£500 if significant advice is required). If incorporation is done through a cooperative business adviser, the cost will be £150. This is a useful reform, even if IPSA registration will still remain more costly than Companies Act incorporation.