3.2.4 Admission of members
The rules must state who can (and cannot) be a member, including individuals, corporate bodies, and the nominees of unincorporated bodies. This includes joint members, where one member must be the nominee representing the interests of the joint members. A society must have a minimum of three founder members, or two founder members if both are societies.
Society legislation has little to say about membership. Section 2 of the Co-operative and Community Benefit Societies Act 2014 requires the registering authority, the FCA, to be satisfied that a co-operative society is a bona fide co-operative, which implies that it must meet internationally agreed principles for membership of co-operatives. No similar requirements apply to community benefit societies.
Legislative changes introduced in 2012 scrapped the minimum age for membership of a society, and lowered the minimum age for election as a management committee member to 16. However, societies are free to set a minimum age for membership, and many societies have chosen to retain 16 as a minimum age for members. Members under the age of 16 are allowed to hold share capital in a society, but Section 31 of the Co-operative and Community Benefit Societies Act 2014 prevents a person under 16 from issuing a receipt, which means they are unable to withdraw their share capital.
The FCA acknowledges that the question of whether a society is a bona fide co-operative should take into account the International Co-operative Alliance (ICA) Statement on Co-operative Identity. The First Principle of this statement is “Voluntary and Open Membership: co-operatives are voluntary organisations, open to all persons to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination”.
This has been taken to mean that membership of a co-operative should focus on a user relationship, such as customer, employee or supplier. Most co-operatives focus on a single user group, although some sponsoring bodies offer model rules for multi-stakeholder co-operatives. Being an investor is not normally considered to be a user relationship. The FCA provides registration guidance for co-operative societies that want to provide for non-user investor shareholders. This is covered in more detail in Section 2.2.4.
The concept of a non-user member does not apply to community benefit societies, which are free to admit whoever they choose to membership. Most model rules for community benefit societies define members as those who support the objects of the society.
A society can have more than one category of membership, with different rights attached to these categories. However, co-operative societies must ensure that such membership rules are consistent with the International Co-operative Alliance’s Statement on Co-operative Identity.
There is also scope to impose an annual subscription fee as a condition of membership. Annual subscriptions are a useful way of covering the cost of providing membership services and can assist the society in maintaining an up-to-date membership list, by requiring members to stay in touch with the society. However, requiring members to pay an annual subscription can be incompatible with encouraging members to maintain their investment in share capital, unless provisions are made to distinguish between the two types of membership, or subscriptions are waived for members holding more than a specified minimum amount of share capital. Others ways of addressing this issue include rules that allow the society to deduct annual subscriptions from the member’s share account, or that convert share capital into debt if membership is terminated as a consequence of failing to pay the annual subscription.
The FCA has also approved model rules that allow for nominee shareholdings. This is where an approved nominee holds shares on behalf of their clients, and exercises their proxy votes at general meetings, subject to restrictions. Nominees will normally be independent financial advisers or the managers of investment funds. While such arrangements may make it possible to attract investment from wider sources, they could weaken the community engagement aspects of community investment, and make the society vulnerable to the influence of the nominee.
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