Info Sheet: Industrial & Provident Society
An industrial and provident society (IPS) is an organisation set up to carry out a trade or business for community benefit. It is incorporated, which means that it has gone through the registration process that converts a new or existing business into a corporate body, making it a legal entity in its own right. IPSs are regulated by the Financial Services Authority, which took the job over from the Registrar of Friendly Societies (both being supervised by the Treasury).
Type of organisation: Industrial and Provident Society (IPS)
Legal status: incorporated
Governing document: IPS rules
Common examples: community business
Consumer, agricultural and housing co-operatives, working mens' clubs, Women's Institute, markets, allotment societies, mutual investment companies, friendly societies and housing associations usually incorporate as IPSs, as do some social enterprises. This process is facilitated by the existence of "model rules" developed by various federal bodies, which reduce the legal costs. Credit unions and building societies, which sprang from the same roots, are now governed by specific legislation.
Types of Industrial and Provident Societies
IPSs fall into two categories:
- bona fide co-operatives - these trade for the mutual benefit of their members, and the Registrar will judge the legality of their action by reference to co-operative principles; and
- societies for the benefit of the community - these trade to benefit the broader community, and the Registrar will refer to charity law. Societies for the benefit of the community are granted charitable status by the taxation authority, HM Revenue & Customs. More on charitable status.
IPSs may in general conduct any legal business except that of investment for profit.
Both types of IPS have a share capital, but it is usually not made up of equity shares like those in a company limited by shares, which appreciate or fall in value with the success of the enterprise that issues them. Rather they are par value shares, which can only be redeemed (if at all) at face value. The profits and losses of an IPS are thus the common property of the members. The share typically acts as a "membership ticket", and voting is on a "one member one vote" basis. The maximum individual shareholding is currently set at £20,000 (although other IPSs may hold more shares than this).
An industrial and provident society has:
- a written set of rules;
- a legal identity;
- the ability to own property;
- the ability to enter into contracts;
- additional legal requirements e.g. company law;
- limited liability (i.e. the liability on management committee members is usually limited to a nominal amount); and
- a profit-making ability, which is put back into the organisation.
It is important to note that limited liability does not protect individuals that act negligently, improperly, fail to meet obligations under company law or trades without sufficient assets to cover debts, etc.