Incorporation

breaston-navi-02

Incorporation

Unincorporated bodies cannot own property. The Friends, presently an unincorporated association, is therefore not able to purchase the Navi should the opportunity arise. So if that’s what the members and the community decide they want to do, we need to be as ready as possible so that we can move quickly. It is therefore essential that the members are agreed about the way ahead so all is prepared in advance.

Discussions which have taken place to date indicate that the favoured incorporated body would be either a community owned Cooperative Society or Community Benefit Society. The main advantage of registering as a Community Benefit Society is the Asset Lock – see below. The main disadvantage is that members cannot be paid dividends but only interest on their shareholding. In both cases members can withdraw shares but not sell them on to another person or organisation.

Cooperatives UK have written a guide to setting up a cooperative which is the basis of this document.

Definition

A Cooperative Society or Community Benefit Society is an autonomous association of people united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.

The society is based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. It is run on the ethical values of honesty, openness, social responsibility and caring for others. These values are put in to practice through voluntary and open membership, democratic member control, member economic participation and concern for the community.

So they are what it says on the tin – a social enterprise owned by members of the community it serves through share ownership. It is run for the benefit of the community. Members are involved in a participative governance structure and decide on the strategic aims of the enterprise and how any surplus income is used either to invest in the development of the business, for community projects, distributed to members in the form of interest on shares or any combination of the these.

Asset Lock

One advantage of incorporating as a Community Benefit Society is the asset Lock. An asset lock is a legal device to prevent the distribution of residual assets to members of a corporate body. Asset locks are intended to prevent private gain from the sale or dissolution of an organisation whose purpose is to benefit the public. On dissolution, the assets are distributed back to the members and any surplus given to a similar asset locked organisation.

How is the Society run?

The Society is governed by its Rules which must be lodged with and approved by the Financial Conduct Authority. The Rules initially have to be approved by the members and should be reviewed regularly to ensure they meet changing circumstances. A set of Rules will be drawn up for members to discuss in the near future.

Naturally the enterprise has to be run in a financially viable manner. So the day to day running is in the hands of an elected board and the appointed manager who are all responsible to the membership.

Strategic decisions are made at meetings of the members where each member has one vote regardless of their shareholding. Straight forward decisions would normally be decided by a simple majority. The Rules set out the voting requirements for major decisions such as changes in policy.

Finance

Communities which have established similar organisations have financed the purchase and set up through a combination of a share issue and a bank loan. Time-bound share offers seek to raise a target amount of capital within a set timescale. This works best for start-up societies with well-developed business plans and where a large part of the capital raised will be invested in and secured by tangible assets such as a building.

Shares are usually offered as £1 shares with a minimum purchase of 250 shares. The maximum shareholding allowed by the legislation is £20,000. Encouragingly, in talking to other communities which have purchased their local pub, shares have been taken up by a high percentage of the community with an average purchase of around £1,000.

The shares are known as withdrawable shares. In other words, they cannot be sold but simply withdrawn at face value of £1 each. The Rules will set out how this is done. A dividend can be paid on Cooperative Society shares and interest on Community Benefit Society shares. These disbursements will be agreed by the members.

There are a number of banks which specialise in supporting community projects such as Triodos and the Cooperative Bank.

Business Plan

A business plan is being prepared and it will be made available to members in the near future.