About Cooperative and Community Benefit Societies

What’s the difference between a Co-operative and Community Benefit Society?

A co-operative society is run for the mutual benefit of members who use its services. This is based upon the common economic, social and cultural needs or interests of the members. Typically, the common need or interest will define their relationship with the co-operative as a service user, customer, employee or supplier. A co-operative society has open membership; there should be no artificial restrictions on membership, and membership should be open to anyone who meets the criteria. Recent guidance from the FCA says that a co-operative society can have investor-members who are not otherwise users of the society’s services. A co-operative society can pay interest on member share capital and a share of the surplus, or dividend, based on the level of transactions (customer-purchases, supplier-sales or employee-wages) with the society.

A community benefit society is run primarily for the benefit of the community at large, rather than just for members of the society. This means that it must have an overarching community purpose that reaches beyond its membership. An applicant enterprise must also have a special reason for being a community benefit society rather than a company, such as wanting to have democratic decision-making built into its structure. Although a community benefit society has the power to pay interest on members’ share capital, it cannot distribute surpluses to members in the form of dividends. A community benefit society can opt to have a statutory asset lock, which has the same strength as the asset lock for a charity and for a community interest company. This type of asset lock is not currently available for co-operatives.

 

What is a charitable Community Benefit Society?

A charitable community benefit society is a community benefit society with charitable purposes. The Charity Commission provides guidance on what constitutes a charitable purpose, based on the Charities Act 2011, which sets out 12 main charitable purposes plus any other purposes that can be recognised as charitable under existing law. (For further information see: www.charitycommission.gov.uk/start-up-a-charity/setting-up-a-charity). However a charitable community benefit society cannot register as a charity with the Charity Commission. Instead it must apply to HMRC to be recognised as an exempt charity for tax purposes. (For further information see: Charity Commission, CC23 Exempt charities.) Exempt charities are entitled to the same tax benefits as registered charities. These include relief from income tax, corporation tax and capital gains tax, exemption from inheritance tax and relief from business or non-domestic rates.

A charitable community benefit society must have exclusively charitable objects. This means that a charitable community benefit society that intends to engage in trading activities that are neither in pursuit of its primary purpose nor ancillary to that purpose, may have to establish a trading subsidiary to carry out this trade.

A charitable community benefit society must have an asset lock. This must take the form of a rule stating that if the society is dissolved, any residual assets must be transferred to another charity with the same or similar charitable purposes.