Background and Summary
3.The purpose of the Act is to amend the law relating to societies registered under the Industrial and Provident Societies Act 1965 (“the 1965 Act”). There are two forms of such societies – ‘bona fide co-operatives’ and ‘societies conducted for the benefit of the community’ (community benefit societies) – which offer an alternative corporate structure to companies regulated under the Companies Acts. Bona fide co-operative societies are run by their members, for their members, whilst community benefit societies are enterprises which benefit the community and in relation to which there exist special reasons why they should not be registered as companies. Such societies can carry out a wide range of services, for example they can be retail societies, agricultural societies, housing associations or working men’s clubs.
4.The aims of the Act are to:
	enable the Treasury to bring forward, in secondary legislation, provisions under which community benefit societies could permanently prevent any use of or dealing with their assets except for the benefit of the community (section 1);
	bring aspects of industrial and provident society law relating to societies’ ability to enter into transactions into line with the corresponding legislation relating to companies, so as to provide protection for those dealing with societies and society committees from adverse consequences if a society or its committee were found to have acted outside the society’s rules (sections 2 & 3);
	bring aspects of industrial and provident society legislation into line with the position in company law in relation to how societies execute deeds and documents and enter into contracts (sections 4 & 5).
5.Currently it is not possible for investors in a community benefit society to be certain that its assets will always be used for the purpose of serving the community. For example, it is possible for a society to convert into a company and use its assets in whichever way it wishes. The Strategy Unit Report Private Action, Public Benefit noted that this situation posed a “serious deterrent to funders” of these societies. The aim of section 1is to address this situation, by allowing for a regime under which members of a society could vote to prohibit irrevocably the distribution of assets other than for the benefit of the community, or the conversion of the society to a company or the transfer of its assets to another body, unless that company or body was also subject to a regime irrevocably restricting the use of and dealing with those assets (an asset “lock-in” regime).
6.Currently a society must limit itself to activities which are permitted by its rules. This creates a risk for those dealing with societies that transactions may be void if a society has acted outside its powers. Further, if the committee of a society has acted beyond its powers in entering a transaction, then the transaction will be void, even if it is within the powers of the society itself. These risks place a burden on a party to a contract with a society to verify that the society’s rules permit it to enter the proposed contract, and to check that the committee is acting within its powers. This in turn may increase the costs and time involved in entering contracts, or deter some from conducting business with a society because they perceive there is a risk of the contract being void.
7.The aim of section 3 is to remove these costs or risks by applying to societies and their committees provisions mirroring certain provisions which currently exist in company law. The section will ensure that an act done by a society is not void simply because it is not permitted by the society’s rules, or because the society’s committee acted outside its powers in relation to the act. In addition, a party to a transaction with a society is relieved of the burden of having to enquire whether the transaction is permitted by the rules, or about any limitation on the powers of the committee to bind the society. But the provisions do not absolve the committee members from their duty to observe any limitation on their powers flowing from the rules, so they will remain liable to the society and the members to make good any loss resulting from acting outside those powers. The section includes special protections for societies which are charities, and section 2 imposes on those societies obligations to ensure that their charitable status is clear in business documentation.
8.A person involved in setting up a society may wish to make contracts in the name of that society before it has been legally registered. At that stage the society does not exist as a legal entity and any obligations or rights in the contracts entered into at this stage may be unenforceable. Section 4addresses this situation, by allowing contracts to be enforceable against and by the person who has acted for or on behalf of the society.
9.Currently societies have to have a common seal, and have to use that seal when they enter into certain types of contracts or execute certain types of other documents. The need to have a common seal may impose a cost of having to have a seal made, and kept safe, and there may also be risks in having documents sent to where the seal is kept. Section 5 removes these burdens by allowing societies to operate without a common seal, but also enables societies which do have a common seal to have further official seals for use overseas.