Registration forms for co-operative and community benefit societies

Transcription

1 Consultation Response Registration forms for co-operative and community benefit societies July General remarks 1.1 In general the usability of the forms has improved. For example, the response boxes now expand with the length of the text which is helpful, particularly as it as it will reduce the need to use continuation forms 1.2 However, we have noticed issues with check box options on the application forms, particularly under the sections 'What are you applying to do?' which permits the user to check all 3 boxes when only one should be checked. This issue seems to be repeated in Section 5 of both application forms and at various points in the Annual Return forms when the options are mutually exclusive. 1.3 The web links need to be made operational and to make the form more readable, these could also be embedded as hyperlinks in the text, rather than appearing in full. 1.4 Most importantly, there are also places in the forms where some help text and or reference to the registration Guidance would be helpful as some questions assume a level of knowledge as posed. Doing so will help the applicant to consider the questions more carefully and will result in fewer misunderstandings and errors. 2 Co-operative society registration form 2.1 This document forms an essential part of the UK statutory co-operative test and needs to provide the FCA with enough information about an organisation to make a robust assessment of its purported co-operative characteristics. We are pleased to see that in most regards it corresponds to FCA policy as set out in Section 4 of the Guidance, which we endorse. However, we believe some crucial questions should be reordered and refocused, so as to better test whether an organisation will be a co-operative as defined in the Guidance, the CCBSA and the ICA Statement. Introduction 2.2 It is good to see citation of the Guidance at the beginning of the form. But we think it would be useful for this to be preceded by a short explanation that this form is a tool used by the FCA to perform the UK s statutory co-operative test, under the CCBSA, in line with the Guidance. Applicants could also be

2 2 prompted to make sure they understand what a co-operative is and why they want to form one. Section 1: about the application 2.3 It would be useful if the explanatory text for question 1.1 What is the full proposed legal name of the society? set out how and when applicants should be providing the additional information required when names appear in annex 1 of the Guidance, are in a foreign language, include acronyms or omit the word limited. 2.4 The question Who should we contact about this application? requires a number. It should also be optional to accommodate sponsoring bodies responding on behalf of a client. If contact details are required for the sponsoring body then these can be added in Section 3. Section 2: about the society 2.5 Firstly, we believe it is odd to begin with question 2 On what date do you want the society s financial year to end? and believe this question would be better situated elsewhere in the form. As this is a fundamental decision I would suggest that the form provides some more helpful explanatory text. It would also be useful to clarify on the form how the requirements apply if a company is converting to a society. 2.6 It would make more sense for the paragraph providing a definition of a co-operative society to come first, again with reference to the Guidance. The structure and content of the questions should flow from Section 4 of the Guidance and its references to the ICA Definition and Principles One to Four. 2.7 It is good that some questions relate so clearly to Principles, such as Member Democratic Control and Autonomy and Independence, as this reflects what is in the Guidance. 2.8 While we certainly agree with including more of a focus on the practical business of the co-operative, we believe it is essential that the FCA s co-operative test treats the business industry and trade of a co-operative as a means to an end, with that end being meeting the common needs and aspirations of its members. The co-operative purpose of meeting members needs and aspirations must take primacy. 2.9 Therefore we suggest the questions in Section 2 of the form should be as follows:

3 Membership and co-operative purpose 2.1 What common interest group, or groups, will form the membership of the co-operative? 2.2 Please clearly describe the common needs and aspirations of these members that the co-operative will meet. 2.3 Please describe how the co-operative will meet its members needs and aspirations through its business, industry or trade. 2.4 Which Standard Industrial Classification code, or codes, best describe the cooperative s business industry or trade? 2.10 At this point we think it would be useful to cite and explain both Section 2.3 of the CCBSA, commonly referred to as the prohibition on investment vehicles, and Principle 3 Member Economic Participation, and then continue as follows: Please describe how any surplus or profit will be applied Next we believe the form should ask questions about Member Democratic Control and Autonomy and Independence We think that as well as organisational relationships, the part of the co-operative test dealing with autonomy and independence must include a clear focus on matters of finance, capital and economic power, as per Principle Four. It would also be useful to explain why a question about finance raising is being asked. For example, explain how Principle Three Member Economic Participation and Principle 4 Autonomy and Independence suggest members pooling capital to develop their co-operative, as do the Values of self-help, self-responsibility and solidarity. Similarly these same Values and Principles suggest a cautious approach to grants, loans, external investment and so on, though does not of course rule them out We also believe that question 2.10 Please tell us about any relationship the society will have with any other business, organisation or public body (e.g. a local authority) is far too broad. It could be taken to include suppliers, landlords and customers, as well as partners, funders and so on. What types of relationship was important here and why? The point here is to find out how the co-operative will ensure its autonomy and independence. We suggest an alternative question as follows: What steps will you take to prevent external organisations from influencing the activities of the co-operative in such a way that member democratic control and co-operative purpose are undermined? 2.14 We also think question 2.10 Please tell us about any payments the society intends to make or benefits (financial or otherwise) it intends to confer to any

4 4 director of the society or any other organisation connected to the society. would be better asked as follows: Will any of the co-operative s directors receive any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details. Will any organisation receive any benefits (financial or otherwise) from the co-operative? [Tick boxes for Yes and No ] If Yes please provide details Thus we suggest the form should continue as follows: Democratic control 2.6 How will members be able to exercise democratic control over the co-operative? Autonomy and independence 2.7 What steps will you take to prevent external organisations from influencing the activities of the co-operative in ways that undermine member control and co-operative purpose? 2.8 Please tell us in what ways the co-operative intends to raise funds to set up and run its business? 2.9 Will any of the co-operative s directors receive any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details. Will any organisation receive any benefits (financial or otherwise) from the co-operative? [Tick boxes for Yes and No ] If Yes please provide details To confirm, we suggest removing the following questions, on the basis that they do not reflect the Guidance, the CCBSA or the ICA Statement: 2.1 Please tell us what the main business of the society will be on a day-to-day basis. 2.3 Please tell us how the society will carry out that business in practice. 2.6 How will members participate in the day-to-day business of the society? 2.7 Please explain how members will benefit by participating in the business of the society? 2.17 Participation in day-to-day business is a confusing, restrictive and distortive interpretation of how a co-operative could meet its members needs and aspirations through business, industry or trade Just what is meant by participation in this context is unclear, though we know from the consultation process that led to the publication of the Guidance that

5 5 the FCA specifically excludes the forms of participation explicitly described in Principles Two (governance) and Three Participation (contributing to and controlling shared capital) It is an essential feature of any co-operative that it members needs and aspirations are met through its business, industry or trade. But nowhere does the Guidance state that an essential feature of a co-operative is member participation in its day-to-day business. What is more neither the CCBSA nor the ICA Statement stipulate such a feature Focusing the co-operative test on 'day-to-day' business is distortive and restrictive and does not correspond with either the Guidance or Section 2 of the CCBSA. The concept of business industry or trade introduced in Section 2.1 of the CCBSA intentionally broad and does not require the registrar to conduct a test in such granular detail As an example of why this focus is inappropriate, consider an agricultural co-operative that stores, processes and sells the grain it has purchased from its members. The day-to-day business of the organisation is storing and processing grain and selling it into markets. Its members do not participate in these activities, as they only sell grain to the organisation once a year. However, they do democratically own and control the organisation and have ongoing participation that way. Overall the business of the co-operative is to benefit its members by providing economies of scale, so as to capture more value in supply chains and access markets on better terms, though this would not become apparent through asking how farmers participate in its day-to-day operations Question 2.7 Please explain how members will benefit by participating in the business of the society? is on the right track, but as we have already said would be more appropriately expressed as follows: 2.23 Please describe of how the co-operative will meet its members needs and aspirations through its business, industry or trade. Section 4: member details 2.24 In relation to question 4.1 Please provide the details of the secretary below, if the Secretary is one of the founding members, for whom contact details have already been provided elsewhere on the form, we suggest that all applicants should be required to do here is confirm which one that is, rather than having to fill in details and sign again We believe that the explanatory note for question 4.3 Societies are within the scope of the Company Director Disqualification Act Please confirm that no proposed director is disqualified under that Act should signpost applicants to more information about director disqualification.

6 6 Section 5: submission details 2.26 Just to confirm, will the current appendices for trustees (1) and resolutions on conversions (3) no longer be required? 2.27 Please change the form to reflect the fact that not all applicants will pay by cheque. Co-operatives UK for example pays by BACS Just prior to 5.2 it would also be useful to insert a reminder for applicants that are using a sponsoring body to check whether that body is in the process of submitting an application on their behalf, before proceeding themselves. 3 Community benefit society registration form Section 1: about the application 3.1 It would be useful if the explanatory text for question 1.1 What is the full proposed legal name of the society? set out how and when applicants should be providing the additional information required when names appear in annex 1 of the Guidance, are in a foreign language, include acronyms or omit the word limited. 3.2 The question Who should we contact about this application? requires a number. It should also be optional to accommodate sponsoring bodies responding on behalf of a client. If contact details are required for the sponsoring body then these can be added in Section 3. Section 2: about the society 3.3 Firstly, we believe it is odd to begin with question 2 On what date do you want the society s financial year to end? and believe this question would be better situated elsewhere in the form. As this is a fundamental decision we suggest the form provides some more helpful explanatory text. It would also be useful to clarify on the form how the requirements apply if a company is converting to a society. 3.4 We believe that the focus of the community benefit test must be on the practical, tangible community benefits the society intends to deliver through its business, industry or trade, with the latter understood as a means to an end. 3.5 We also believe it is important to note that a society could legitimately pursue a wide range of activities in order to deliver its desired community benefits. Crucially, how members of a community participate in the society, for example through ownership, volunteering, governance, and making decisions about use of surpluses, can often be absolutely essential to the business of the society and how the community benefits are delivered. For example, the positive impacts produced by social innovations that include a lot of communal participation and personal agency are increasingly well-documented and recognised. Thus the immediate focus in question 2.1 on the day-to-day

7 7 business of the society is too reductive and is thus an inappropriate place to begin. 3.6 The concept of business industry or trade introduced in Section 2.1 of the CCBSA is intentionally broad and does not require the registrar to conduct a community benefit test in such granular detail. 3.7 On the other hand, we agree that a clear question about the beneficiary community in the context of the community at large would be very appropriate. 3.8 We suggest the questions proceed as follows: Community benefit 2.1 Please describe the benefits to the community the society aims to deliver. 2.2 Please define any particular community that will benefit from the business of the society. 2.3 Please describe of how these community benefits will be delivered through the society s business industry or trade. 2.4 Which Standard Industrial Classification code, or codes, best describes the society s business industry or trade? 3.9 Aside from purpose of business, just how robust the community benefit will be in practice will depend on the following: the relationship a society has with its members, including how it is governed; how it raises and utilises funds; and its relationships with other organisations. This needs to be clearly explained in relation to relevant lines of questioning, with reference to the relevant part of the Guidance, on share capital for example We also think question 2.10 Please tell us about any payments the society intends to make or benefits (financial or otherwise) it intends to confer to any director of the society or any other organisation connected to the society. would be better asked as follows: Will any of the society s directors receive any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details. Will any organisation receive any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details When properly contextualised and explained, many of the questions proposed in the registration form are broadly appropriate. But the context in which they are asked also needs to be clearly structured Thus we suggest the questions continue as follows:

8 8 Relationships with members 2.5 Please tell us about the role of members in your society. 2.6 Please explain in how members will participate in the governance of the society. Finances 2.7 Please tell us in what ways the society intends to raise funds to set up and run its business? 2.8 Please describe how you will use any surplus or profit. 2.9 Will any of the society s directors receive any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details. Will any organisation receive any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details We understand the need to identify close links but are concerned that question 2.10 Please tell us about any relationship the society will have with any other business, organisation or public body (e.g. a local authority) is far too broad. It could be taken to include suppliers, landlords and customers, as well as partners, funders and so on. What types of relationship was important here and why? When it comes to other organisations benefiting from the business of the society, we believe this should already be picked up in our suggested question: Will any organisation receive any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details A clearer question about external organisations influencing or controlling a society and how that might impinge on the delivery of community benefit could be as follows: Relationships with other organisations 2.10 What steps will you take to prevent external organisations from influencing the activities of the society in such a way that the delivery of community benefit is undermined? 3.15 We think the explanatory note for question 2.12 Has the society included a statutory asset lock in its rules? needs to refer and signpost to the relevant part of the Guidance. It should also make it clearer that once a community benefit asset lock is adopted, legislation prevents a stronger charitable asset lock cannot be adopted at a later date To confirm, we suggest omitting the following questions:

9 9 2.1 Please tell us what the main business of the society will be on a day-to-day basis. 2.3 Please tell us how the society will carry out that business in practice As we ve said already, we believe focusing in granular detail on day-to-day business in question 2.3 is too reductive to properly understand how a society will conduct business industry or trade for the benefit of the community Furthermore, we believe the utility of question 2.3, as written, is hard to determine when details about business industry or trade have already been asked for. It is a confusing question, and more so given the commentary provided, which suggests answers could cover anything from frequency of business to relationships with other organisations. The latter is more clearly covered in other questions discussed in paragraph 3.14 above. Section 2: Charitable objects 3.19 We believe question 2.14 If charitable, what is your charitable purpose? should be omitted. The FCA has no statutory duty or authority to judge whether a society s objects are charitable in nature. That is for HMRC to determine for societies in England and Wales and for OSCR to determine for societies in Scotland. The FCA s role is simply to ensure those sections of the CCBSA that apply to recognised charitable community benefit societies are complied with We must avoid creating a situation in which a society s charitable objects are being assessed by two separate governmental bodies, only one of which has any official business doing so Thus we believe the questions should continue as follows: Charitable societies 2.12 Does the society intend to register as a charity for tax purposes under paragraph 1 schedule 6 of the Finance Act (2010) [Tick boxes for Yes and No ] [Link to more information about this] If Yes please confirm that the society s objects fulfil the requirement in the Charities Act (2011), if in England and Wales, and Charities and Trustee Investment (Scotland) Act 2005, if in Scotland [Tick box] 3.22 Currently charitable societies are asked to provide trustee details as part of the application. Is the plan to stop doing that? Section 4: member details 3.23 In relation to question 4.1 Please provide the details of the secretary below, if the Secretary is one of the founding members, for whom contact details have already been provided elsewhere on the form, we suggest that all applicants

10 10 should be required to do here is confirm which one that is, rather than having to fill in details and sign again We believe that the explanatory note for question 4.3 Societies are within the scope of the Company Director Disqualification Act Please confirm that no proposed director is disqualified under that Act should signpost applicants to more information about director disqualification. Section 5: submission details 3.25 Just to confirm, will the current appendices for trustees (1) and resolutions on conversions (3) no longer be required? 3.26 Please change the form to reflect the fact that not all applicants will pay by cheque. Co-operatives UK for example pays by BACS Just prior to 5.2 it would also be useful to insert a reminder for applicants that are using a sponsoring body to check whether that body is in the process of submitting an application on their behalf, before proceeding themselves. 4 Annul return (AR30) forum 4.1 As the FCA sends the AR30 form to societies to complete, we wonder whether a process could be developed through which certain information held on the society (name, address, director details, for example) could be pre-populated, for the society either confirm, or updated as required. This would provide at least some provide more parity with the demands placed on registered companies. Front page 4.2 The web link to the Guidance needs to be activated and embedded in text as a hyperlink. 4.3 It would be useful for the form to signpost societies to sections of the Guidance particularly relevant to the AR30, such as Section 7 which covers accounting and audit requirements. Section 2: people 4.4 An explanatory note should be added to the No director is disqualified tick box signposting applicants to more information about director disqualification. Section 4: audit 4.5 Under, Please select the audit option the society has complied with it would be more helpful if explanatory text signposted societies to the specific sections in the Guidance that outline the requirements of each option. For example, the requirements for a Lay Audit are under the section Small Society Exemption in the Guidance.

11 Under Please confirm any audit report where required is being submitted with this Annual return it would be more helpful to state that this is only required if the society is actually required to carry out a full professional audit. 4.7 Under, Does the society have one or more subsidiaries? a web link to the specific sections of the Guidance and the CCBSA would be useful. Section This section of the form is confusing. Different questions need to be asked in different contexts for co-operative societies and community benefit societies. It would be better for there to be two sub-sections with separate sets of questions for each legal form. 4.9 Clearly, as set out in part 2 above we disagree with some of the proposed questions that will form the practical statutory co-operative test. Please refer to part 2 for our rationale for the differing line of questioning we propose. For cooperative societies we suggest that the following questions should be asked in the AR30: Co-operative societies Please describe how the co-operative has met its members needs and aspirations through its business, industry or trade in the past year. Which Standard Industrial Classification code, or codes, best describe the co-operative s business activities in the past year? Please describe how any surplus or profit made by the co-operative was applied in the last financial year. How have members democratically controlled the co-operative in the past year? What steps have been taken to prevent external organisations from influencing the activities of the co-operative in such a way that member democratic control and co-operative purpose are undermined? Have any of the co-operative s directors received any benefits (financial or otherwise) from the co-operative? [Tick boxes for Yes and No ] If Yes please provide details. Have any organisation received any benefits (financial or otherwise) from the co-operative? [Tick boxes for Yes and No ] If Yes please provide details.

12 In part 3 we provide a rationale for our proposed questions for conducting the statutory community benefit test. For community benefit societies we suggest that the following questions should be asked in the AR30: Community benefit societies Please describe the benefits to the community the society has delivered in the past year through the society s business industry or trade. Which Standard Industrial Classification code, or codes, best describes the society s business activities in the past year? Please describe how any surplus or profit made by the society was applied in the last financial year. Please describe the roles members have played in the society in the past year, including how they participated in the governance of the society. What steps have you taken to prevent external organisations from influencing the activities of the society in such a way that the delivery of community benefit is undermined? Have any of the society s directors received any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details. Have any organisations received any benefits (financial or otherwise) from the society? [Tick boxes for Yes and No ] If Yes please provide details. Section 6: Submission 4.11 It would be useful for the AR30 to come with a checklist. James Wright, Policy Officer Co-operatives UK james.wright@uk.coop Linda Barlow, Co-operative Governance Advisor Co-operatives UK linda.barlow@uk.coop

13 13 About Co-operatives UK Co-operatives UK is the network for Britain s thousands of co-ops. We work to promote, develop and unite member owned businesses across the economy. From high street retailers to community owned pubs, fan owned football clubs to farmer controlled businesses, co-ops are everywhere and together they are worth 35.7 billion to the British economy.