The legal framework governing co-operatives and community benefit societies in the UK has far-reaching implications for co-operators, but there has not been a general review of co-operative law since 1893 – until now
During the review process, which was announced last year by then-finance minister Andrew Griffith at Co-op Congress, the Law Commission consulted with over 30 stakeholders from across the UK co-op movement, including the Financial Conduct Authority, Co-operatives UK, co-op law experts and co-operators from different sectors including retail, energy and housing.
The resulting product is a 219 page document containing 87 consultation questions on a range of topics affecting UK co-operative and community benefit societies.
The review proposes reform around the legal definitions for co-operative and community benefit societies, as well as the regulation of charitable community benefit societies.
In the consultation document, the Law Commission provisionally proposes that the statutory definition of a co-operative society should state that, as a minimum, it is a society for carrying on any business mainly for the benefit of its members through transactions with its members, and that membership is voluntary and open to all, with one vote per member.
The proposed definition of a community benefit society would be the same, except its business would be explicitly for “the sole benefit of the community”.
A number of reforms around shares have also been proposed, including the definitions of withdrawable and transferable shares, prescribed conditions for withdrawal and transfer, protections for class rights and when writing down shares, limits to interest payable on shares, and confirmation that shares can be issued with varying rights and to non-user investors.
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Speaking at an event organised by Co-operatives UK, Law Commission lawyer Nathan Tamblyn said: “You might not like our proposed restrictions on shares or our proposed definitions, and that’s fine … Our proposals are a starting point in the debate.”
But the challenge, added Tamblyn, is that there must be legal distinction between companies and societies, so that companies are restricted to the more heavily regulated company law, and only societies can benefit from more lightly regulated society law.
“What is it that makes societies distinct from companies? That is what we try to aim at in our definitions and our shares.”
A host of other proposals are also included in the consultation, including, to name just a few: listing society officers’ names on the Mutuals Public Register; enabling electronic-only filing of documents and virtual board meetings; and allowing societies to ‘entrench’ any of their rules (which could be used to protect against changes such as demutualisation).
Co-operatives UK is now supporting its members to participate in the consultation process, and has already shared provisional responses to some of the consultation questions based work with its members to date.
“Many of the Law Commission’s proposals reflect the needs and aspirations of the sector and will have a positive impact. Other proposals could be very beneficial, subject to refinement or clarification. However, some proposals appear misaligned with what members and experts have told us is needed,” it said in a statement.
With regard to the definition of co-operative and community benefit societies, Co-operatives UK has raised disagreement with some details, such as the inclusion of criteria including ‘one member, one vote’, ‘transactional benefit’ and ‘open to all’, as well as the requirement for community benefit societies to be solely for community benefit.
On shares, Co-operatives UK agrees with proposals to confirm that shares may be issued to external investors, as well as giving societies greater flexibility to fund share withdrawals, but argues for legal clarification that societies have the option of issuing repayable, non-withdrawable shares, as well societies’ right to restrict the voting rights of external investors, which it highlights as “standard practice” in many countries.
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In a briefing note published on the International Cooperative Alliance website, Anthony Collins Solicitors described the review as “long overdue”.
“This is an important moment: although there is no guarantee that legislation will follow, a Law Commission review is a rare opportunity to bring to wider attention the need for legal reform,” says the briefing.
“That is particularly the case for co-operative law (the law concerning co-operative and community benefit societies), in which the UK has fallen behind other jurisdictions even though co-operation has its origins here.”
The note also highlights the significance of the co-operative legal framework given the new government’s pledge to double the size of the co-operative and mutual economy.
There are a number of ways co-operators can find out more and ensure their voice is heard during the consultation process. Co-operatives UK will submit a response on behalf of the co-operative sector in December, and encourages all members to input into this work, as well as to submit their own responses. Co-operatives UK is also running a member consultation on legal definitions, which can be contributed to here, and an in-person session with the Law Commission will take place at the Practitioners Forum in November.
Guidance on the review is being published by organisations including Co-operatives UK and Anthony Collins Solicitors, and the full Law Commission consultation documents can be found on the Law Commission website. The deadline for responses is 10 December 2024.
