2.1.5 Choosing between society types
The three types of societies serve three different groups of beneficiaries. Co-operatives are for member benefit, community benefit societies are for community benefit, and charitable community benefit societies are for public benefit. There are important yet subtle distinctions between member, community and public benefit. The concept of public benefit is central to charitable law, and focuses exclusively on charitable objects, whereas community benefit is neither necessarily, nor exclusively, charitable. Member benefit in a co-operative society is shaped by co-operative values and principles, which distinguishes it from the private benefit of company shareholders.
All three types of society have their pros and cons. Co-operatives have the scope to distribute profits to members in the form of a dividend based on the level of their transactions with the co-operative, which can incentivise member loyalty and strengthen the business model. Community benefit societies with a statutory asset lock may provide greater reassurance to public funders and grant-giving bodies, while still affording such societies the freedom to engage in a wide range of business activities and are not restricted to pursuing charitable objects. Charitable community benefit societies enjoy all the tax benefits that apply to charities, but are restricted to exclusively charitable purposes.
Co-operatives might have greater appeal to members who are attracted by the benefits of mutuality and community; community benefit societies might be more appealing to members who put wider community benefit before their mutual interests. Only co-operative societies have the scope to distribute surpluses to members in the form of a dividend on members’ transactions. The option to pay dividends is a prudent way of managing the finances of a society, and for encouraging member loyalty.
All three types of society can have an asset lock, a defining feature of community shares according to CSU policy. A charitable community benefit society must have a statutory asset lock, defined by charity law, whereas a community benefit society can choose between a statutory asset lock and a voluntary asset lock. A co-operative society can choose to adopt a voluntary asset lock, although there is no requirement to do so, and the FCA does register co-operative societies without this feature.
Choosing between a co-operative society or community benefit society structure is important because, while it is possible to convert a co-operative into a community benefit society, it is not possible to convert a community benefit society into a co-operative, or for a charitable community benefit society to simple cease being a charity.
In the UK, a co-operative can take any legal form, as long as its governing document enshrines the co-operative values and principles laid out in the ICA Statement of Identity, Values and Principles. Many community benefit societies embrace co-operative values and principles and are co-operative members of Co-operatives UK.
If you have any questions or suggestions for new information you would like to find in the Handbook, contact the team by email at [email protected]