Co-operatives and Community Benefit Societies

Mills, Misery and Mutuals

The innovations and advances of the industrial revolution were underpinned by many social consequences, responses to which resonate some 200 years later in modern society. For 28 artisans experiencing the tough conditions of cotton mills in Rochdale, and the low wages which constituted the reward for their efforts, establishing the Rochdale Equitable Pioneers Society in 1844 was one such response. Combining the meagre resources generated by their poor pay enabled them to buy basic but costly staples (such as flour, oatmeal, sugar and butter) at lower, more manageable prices. The customers of the shop they set up became its members, with a democratic right to have a say in the business and a share in the profits resulting from their custom. This was the origin of the modern co-operative society, which we now recognise as a type of mutual society.

Mutuals are organisations that operate for the benefit of their members, another everyday example being a building society. Other examples include credit unions and the charmingly named “friendly societies”. Today, these types of mutuals are registered with and regulated by the Financial Conduct Authority, whilst some other types are registered with Companies House. Co-operatives are spoken in the same legislative breath as their distinct companions, community benefit societies, and both these sorts of mutual society have existed long enough to be governed by some quite archaic legislation (dating not quite from 1844, but not much later). Previously known by the Victorian label of “industrial and provident societies”, neither of these mutuals is particularly well understood, although in fact there are many of them and they deserve a higher public profile.

What is a co-operative today?

We can all relate to nipping into our local Co-op convenience store for an urgently needed pint of milk. Despite today’s ability to pay for such at the scan-and-swear self-checkout, this isn’t so different from what the Northern weavers would have done in the mid-Nineteenth Century. But what makes the modern Co-op what it is and are there other types of co-operative? At heart, a co-operative is a type of business which operates for the economic, social and cultural benefit of its members. Those members are usually the people closest to the business and typically include employees, customers and other people from the local community. Their equitable investment in the co-operative entitles them to a say in running the co-operative and, although the co-operative is a for profit business, it is value-driven: the focus of the members is on how they make profits and what they do with them to bring value to their members and communities.

According to the International Co-operative Alliance Statement of Co-operative Identity: ”co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.” Although co-operatives have the benefits of mutuality and community, they also have the scope to distribute profits to members through dividends based on the level of members’ transactions with the co-operative. This can serve to incentivise member loyalty and strengthen the business model. All sorts of businesses can be structured as co-operatives, from housing and healthcare co-operatives to bookshops, wine sellers and taxi firms. Although proven to be successful and resilient as a business model, there are relatively few of them – possibility due to lack of awareness and understanding of and familiarity with the business model.

How is a community benefit society different?

The clue is in the name: this is a type of social business that exists to benefit the community, re-investing its profits in the community. The community in question can be a local one, or it can be the community at large. The society must exist for the purpose of carrying on an industry, business or trade and can be wholly charitable or not: as long as it is conducting its activities for the benefit of the community. If charitable, a community benefit society is exempt from registration with the Charity Commission and is generally subject to a lighter touch regulatory regime than registered charities. Although members invest in shares in their society, the society itself is a democratic structure, operating on the basis of one vote per member regardless of the amount contributed by that member through their investment in shares. It is an attractive structure in appropriate circumstances, encouraging community engagement, influence, investment and control in a project or purpose to benefit that community. Examples of such societies can include local regeneration projects, community land trusts, housing associations, heritage societies and community pubs.

Although there was some legislative change in 2014, the first major review in over a hundred years of the law affecting co-operatives and community benefit societies is being undertaken by the Law Commission. The existing rules governing the formation and operation of these interesting models require careful navigation, and proposed improvements in clarity and consistency in relevant legislation may result in the enhanced promotion of these types of businesses and their treatment as proper alternatives to the better-known business structures.  The numerous successful examples of both structures in operation today, though, emphasises the original inspirational genius of those Rochdale mill workers.

Please get in touch if you have any questions.