Government confirms historic changes to the law on co-operatives, which will help to safeguard co-operative assets in the long-term.
Following the Second Reading of the Co-operatives, Mutuals and Friendly Societies Bill ("Bill") in the House of Commons on 28th October 2022, the Government confirmed that it is prepared to take forward aspects of the Bill relating to common capital.
We discussed the proposed Bill in more detail in our article "A new way to raise and retain capital for co-operatives". There has been no further comment regarding the introduction of repayable shares, but the government has decided to take forward the provisions regarding common capital, aimed at discouraging demutualisation. The proposal gives co-operatives the option of legally guaranteeing that some or all of their assets are held in common and non-distributable among members.
What are the benefits to co-operatives?
There are two key benefits for co-operatives if the common capital provisions continue to proceed as drafted:
Increase in legal certainty
- Consumer co-operatives will have the legal guarantee that built up wealth over time will not be squandered by future members for short-term personal gain.
- Multi-stakeholder co-operatives will be able to grow and accept investment with greater confidence that the co-operative purpose will remain consistent in the long term.
- Any additional available capital surplus can then be re-invested in economically, environmentally and socially productive enterprises.
Better choices as to legal form
- Local communities will be more easily engaged through the incentive of stronger community ownership of local assets.
- It will be possible to remove incentives to reduce co-operative value through demutualisation (share company conversion), which could be particularly useful for housing co-operatives which hold land and property.
- Co-operative buyouts of existing businesses may be more attractive, creating potential for growth.
It is anticipated that the Bill will proceed to the Committee Stage in the House of Commons, where it will be subject to technical amendments, before the end of the year. Although nothing is certain until the Bill has been enshrined into law, overall it is good news for the co-operative sector as this legal form may become more attractive to a multitude of stakeholders, including members, funders and investors.
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