An IPS can raise capital whilst being exempt from the authorised persons and financial promotions regimes
Industrial and Provident Societies (IPSs) have their roots in the co-operatives and mutual societies of the nineteenth century. Today, an IPS provides a low-cost structure for fundraising by social investment enterprises such as renewable energy schemes, community pubs and shops, larger sports clubs and local finance organisations. In recent years, IPSs have received renewed attention from Government as a suitable format for community investment.
There are two main forms of IPS:
- Co-operatives, run for the mutual benefit of members who use the services of their society.
- Community benefit societies, run for the benefit of the community at large, rather than just the members of the society.
Both forms of IPS are corporate bodies registered under the Industrial and Provident Societies Act 1965.
A unique corporate form
IPSs have limited liability status and, crucially, can raise capital from members. They have characteristics that make them both suited for community investment projects and different from Companies Acts limited companies. Those characteristics include:
- One member, one vote – regardless of the number of shares a member holds. Members appoint and remove directors and determine the IPS’s rules.
- Withdrawable share capital – the share capital maintenance rules for Companies Acts companies do not apply to an IPS. Share capital can be withdrawn at any time, subject to the IPS’s rules. In most cases, those rules make withdrawals subject to the discretion of the directors.
- Limits on shareholding – no member can hold more than £20,000 in shares.
- The ability to pay interest on shares (in some ways similar to a dividend).
- Asset locks – a prohibition can be imposed by members on the sale of assets.
The shares in an IPS cannot increase in value; they are withdrawn at the price originally paid.
Possible exemption from financial services restrictions
A key attraction of IPSs for groups raising capital for community projects is their potential exemption from Financial Services and Markets Act 2000 (FSMA) restrictions.
When an IPS offers its own shares or debt, it falls within the exemption in Article 18 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. As a result, the IPS is unlikely to need to be an authorised person for FSMA purposes.
And Article 35 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 exempts IPSs from having to comply with the FSMA financial promotions regime when offering shares or debt.
As a result of these exemptions, IPSs can avoid the cost and other burdens of complying with the FSMA authorised persons and financial promotions regimes – making them attractive for small community capital raisings that wish to avoid large compliance and adviser costs.
Co-operatives UK publication
Much of the information in this post is drawn from the very informative Co-operatives UK 2008 publication “Community Investment – Using Industrial and Provident Society Legislation”, which can be accessed here. This publication contains a fuller summary of the relationship between FSMA and IPSs at page 35.
There is also information about IPSs, and in particular the registration process, on the Financial Services Authority website here.
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