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October 22, 2008

What legal structure should we adopt?

Whether it’s the local shop; a new wind farm, or any other community owned enterprise – a new book argues that the most effective structure to adopt is that of an Industrial and Provident Society (IPS). This model is enjoying a new wave of popularity because it blends the roles of investor, member, customer and volunteer.

new sector magazine

What’s the link between a fair trade money lender and a community-owned wind farm? The answer is to be found in a new book written by Jim Brown and published by Co-operatives UK entitled Community Investment

Using Industrial and Provident Society Legislation.
As this issue of ns went to print final preparations were being made for the book’s launch by lain Wright MP, Parliamentary Under Secretary of State, Communities and Local Government, at the unusual venue of the Financial Services Authority in Canary Wharf.

Jim Brown is a very experienced researcher, consultant and trainer who revels in the detail of co-operatives, community business and social enterprise. He has managed to make an examination of the use of fairly obscure legislation interesting, intriguing and inspiring.

There are about 8,200 industrial and provident societies in the UK ranging in size from the Co-operative Group, with a £9.4 billion turnover, to tiny allotment societies dating back to the nineteenth century. In recent years this old corporate model has been used by a new wave of community activists to raise money for (and stimulate participation in) a wide range of enterprises including wind farms, village shops, loan funds and telecommunications.

Since 2005 the number of community investment initiatives using IPS legislation has doubled. More than £47 million has been invested by over 65,000 people.

Jim Brown describes how the fair trade movement was responsible for starting this phenomenon. In 1989 at the same time as Oxfam, Equal Exchange, Traidcraft and Twin Trading were arranging to import coffee directly from producers (the initiative that led to Cafedirect), many of the same people were also involved in setting up an organisation to finance fair trade.

Shared Interest (the ‘fair trade money lender’ mentioned earlier) was the first IPS to raise share capital by inviting members to invest in withdrawable shares. Members can invest anything between £100 and £20,000 in their share accounts and the combined capital of all their shares is used to lend money to fair trade producers in developing countries. Shared Interest now has 8,575 members who have between them invested £25.5 million.

Recently local communities in England, Scotland and Wales have used the IPS model in a similar way to raise capital for wind farms. That’s the link.

Jim Brown explains how a number of unique attributes make IPS legislation the ideal format for community investment initiatives. These include shareholder democracy (one member, one vote regardless of number of shares held), withdrawable share capital, limits on shareholding and interest payable and the option to install an asset lock. Raising investment via shares in an IPS is very much cheaper than a public share issue in a public limited company (because of the regulations involved). But much more important, Brown says, is the community engagement. “Instead of turning to the private sector and wealthy individuals for support, community investment is about engaging communities to invest in themselves. …The full power of community investment does not stop with the amount of capital raised. Community investors are often the best customers of the venture, their loyalty contributing to its sustainability. It provides a new business model for communities to help themselves, and create viable ventures where the private sector has failed.”

This timely book is being published just when the government is considering various reforms to the IPS legislation. Co-operatives UK has worked closely with the Treasury and Financial Services Authority on the proposals. Co-operatives UK is hoping that the reforms will make IPSs an even better model for community investment. In the foreword to the book Dame

Pauline Green, chief executive of Co-operatives UK wrote “Democratic community engagement is a powerful force for regeneration and for new business ventures. IPSs marry and blend the roles of member, investor, customer and volunteer. The model had a great past and has an even greater future.” Community Investment Using Industrial and Provident Society Legislation, by Jim Brown, published by Co-operatives UK, ISBN 978-0-9549677-1-0,40 pages, price £15.00, is available from
Co-operatives UK, Holyoake House, Hanover Street, Manchester M60 OAS, tel 01612462900.

A download is available at