The legal foundation.... painful but we have to get it right!
We have been fortunate to receive help from Carbon Leapfrog, a legal charity that knows it is difficult for community groups to find suitable legal help, let alone afford it.
We started life as a Community Interest Company, because it was quick and easy to set up. However the rules for a CIC meant that the dividend that shareholders were allowed to receive would be too small to be attractive. So we converted to an Industrial and Provident Society (Benefit of the Community.) That needs explaining:
Industrial and Provident Society: this is simply the legal name for a co-operative. It is governed by Rules, and the Rules are designed to spread the ownership and make the board more accountable to the shareholders than in a normal company. When you buy shares you become a member. The shares are fixed price (£1); nobody can own more than £20,000; there is one vote per member instead of one vote per share; the members elect the directors, and 1/3 of the directors have to be elected each year.
Benefit of the Community (Bencom): this is important. It is a distinct type of co-operative, designed for social purposes. It has restrictions that make it easier to get FSA approval. The concept is that the members do not actually own the company, they are merely investors, and the company belongs to the community. There is an asset lock, which means the company cannot sell off its assets or be taken over, except by another bencom company. The members are paid interest on their shares, but it is only permitted to be as much as is needed to retain the business. All the remaining profit has to go back into the community. The Rules say who will benefit - in our case, “Abingdon on Thames and its environs“.