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An industrial and provident society (IPS) is a legal entity for a trading business or voluntary organisation in the United Kingdom, the Republic of Ireland, and New Zealand. Recent UK legal developments include the Co-operatives and Community Benefit Societies Act 2003, which has introduced the concept of an asset lock, which a society registered as a community benefit society (but not one registered as a co-operative) can introduce to prevent specified assets being used for unintended purposes.
IPSs may in general conduct any legal business except that bona fide co-ops may not invest purely for profit.
Consumer, agricultural and housing co-operatives, working men's clubs, Women's Institute markets, allotment societies, mutual investment companies, friendly societies and housing associations usually incorporate as IPSs, as do some social enterprises. This process is facilitated by the existence of "model rules" developed by various federal bodies, which reduce the legal costs. Credit unions and building societies, which sprang from the same roots, are now governed by specific legislation.
IPSs fall into two broad categories:
IPSs are registered (but not regulated) by the Financial Conduct Authority (FCA), which took over the job from the Registrar of Friendly Societies when it was part of the Financial Services Authority (FSA) (both being supervised by the Treasury). Note that IPS registration is quite separate from the FCA's function of regulating financial institutions.
Such businesses have been controlled in the past by the Industrial and Provident Societies Partnership Act 1852 and the Industrial and Provident Societies Act 1893. The legislation in the Republic of Ireland is based on modifications of the UK Industrial and Provident Societies Act 1893.
Nowadays in the UK they fall under Co-operative and Community Benefit Societies and Credit Unions Act 1965 (as it will be renamed by section 2 of the Co-operative and Community Benefit Societies and Credit Unions Act 2010 which is not yet in force; currently the Industrial and Provident Societies Act 1965) and subsequent legislation to the present day such as The Friendly and Industrial and Provident Societies Act 1968 (Audit Exemption) (Amendment) Order 2006 - Statutory Instrument 2006 No. 265 (which increased the audit exemption threshold level for industrial and provident societies to £5.6m) and the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 - Statutory Instrument 2011 No. 2687 which increased the maximum shareholding limit, changed the date of submission of the annual return, permitted children to be members, and allows the publication of unaudited interim accounts.
On January 19, 2012, British Prime Minister David Cameron announced the Conservative led Government's intention to introduce a consolidating Act for societies to be passed by 2015. This has been argued to provide some limited scope for change and reform but does not deal with certain key problems. Further changes to the registration system under the Financial Services Act 2012 which splits the Financial Services Authority into the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) took effect on 1 April 2013. The registration function for societies was transferred to the FCA while the prudential regulation of credit unions was transferred to the PRA. In September 2013, the English and Scottish Law Commissions published a draft consolidation bill and related documents for consultation. Earlier that year, the UK Treasury, which is the department responsible for legislation for societies, published a series of proposals to increase the holding limit for withdrawable share capital in societies to at least £31,000, to apply insolvency rescue procedures to societies, and to change the rules applicable to their registers of members. Draft regulations linked to that consultation are also available, having been circulated to a small number of people. Those drafts and other materials, including a private member's bill to liberalise the use of share capital by societies presented to the UK House of Lords are explained and brought together online.
Some industrial and provident societies that exist for community benefit are charitable. Under British law, they are exempt charities and do not need to register with the regulator for charities (in England and Wales, the Charity Commission). However, when the Charities Act 2006 comes into effect, that exemption is removed from all charitable IPSs in England and Wales. From that point, charitable IPSs will have to register with both the FCA and the Charity Commission, except Registered Social Landlords, who register with the Tenant Services Authority.
Unlike a company limited by guarantee, an IPS generally has a share capital. However, in a not-for-profit IPS the share capital may be limited to a nominal amount. Both types of IPS have a share capital, but it is usually not made up of equity shares like those in a company limited by shares, which appreciate or fall in value with the success of the enterprise that issues them. Rather they are par value shares, which can only be redeemed (if at all) at face value. The profits and losses of an IPS are thus the common property of the members. The share typically acts as a "membership ticket", and voting is on a "one member one vote" basis. The maximum individual withdrawable shareholding is currently set at £20,000 (although other IPSs may hold more shares than this). The Legislative Reform Order (Industrial & Provident Societies and Credit Unions) Order 2011 removed the limit for non-withdrawable shares. See LRO info from FSA. Since 2006, the FSA has been willing, in principle, to permit societies to have non-user investor members providing certain conditions are met and this, in combination with the removal of the £20,000 holding limit for non-withdrawable shares, may open up wider possibilities for co-operatives to raise finance from investors while maintaining user control.
It may be withdrawable share capital, an unusual form of finance which is treated as equity but may be withdrawn subject to specified conditions, and is relatively cheap for small co-operatives to raise as it is exempt from certain regulations applicable to conventional share issues regarding the publication of a prospectus. However, an IPS with withdrawable share capital is not allowed to carry on a banking business, presumably because a withdrawable share capital would make it impractical to ensure capital adequacy requirements are continuously met.