Law Commission review of the Co-operative and Community Benefit Societies Act: what does it mean for charitable community benefit societies?

In this article we take a closer look at the potential impact for charitable community benefit societies.

For an overview of the Law Commission’s consultation on the Co-operative and Community Benefit Societies Act 2014 (2014 Act), you can read the first article in our series here: Law Commission Review of the Co-operative and Community Benefit Societies Act 2014 Consultation Paper No.264 September 2024 - Wrigleys Solicitors LLP

You can read the Law Commission’s Review of the Co-operative and Community Benefit Societies Act 2014 document here, as well as a shorter Summary of the Consultation Paper here.

In this article we will focus on what the consultation means for organisations structured as a charitable community benefit society, or those who are considering establishing an organisation with this structure.

What is the current regulatory framework for charitable CBSs?

Currently, there is no statutory definition of a community benefit society (CBS). To be registered as a CBS under the 2014 Act, the FCA must be satisfied that “the business of the society is being, or is intended to be, conducted for the benefit of the community”. The FCA has also produced a guide which provides further information on what constitutes a CBS.

If the CBS will have exclusively charitable purposes and operate for the public benefit, it could choose to register as a charitable CBS. A charitable CBS is an exempt charity. This means that it cannot register with the Charity Commission and obtain a registered charity number, and it will not appear on the public register of charities, but it must generally comply with charity law.

The FCA acts as the registrar, and there is currently no principal regulator of charities. Although the Charities Act 2006 required all exempt charities to have a principal regulator, to this date no principal regulator has been appointed for charitable CBSs (that are not registered social landlords).

Once registered by the FCA, a charitable CBS can apply to register with HMRC for charitable tax reliefs.

Wrigleys acts as a sponsoring body for the Charity Law Association model rules for charitable CBS. We regularly assist groups to register a CBS who are providing housing to people in charitable need, undertaking conservation work, acting as a charitable community land trust, or providing education.

What changes are the Law Commission proposing for charitable CBSs?

One of the main changes proposed by the Law Commission which would affect charitable CBSs is that they should cease to be exempt charities. This would mean that all charitable CBSs would be required to register with the Charity Commission. They are also consulting on whether the lead regulator should be the Charity Commission or the FCA.

For regulated providers of social housing which are also charitable societies, this would mean that the FCA acts as registrar, and the Charity Commission and the Regulator of Social Housing would act as regulators.

This would likely mean that charitable CBSs would need to comply with charity law in full, including provisions on disposals of land, some of which currently don’t apply.

The Law Commission is also proposing a new statutory definition of CBS. It has provisionally proposed that a community benefit society is:

• A society for carrying on any business;

• For the sole benefit of the community;

• Membership is voluntary;

• Membership is open to all;

• One vote per member.

If introduced, the Law Commission has proposed that this definition will have retrospective effect, and that all CBSs must comply within a certain time period.  We have commented on this proposed definition below.

There are also other areas which are relevant to charitable CBSs, such as suspension and cancellation of registration, whether current officers should be listed on the Mutuals Public Register, and the right to appeal decisions of the registrar.

How could the Law Commission's proposals impact charitable CBS?

One of the key impacts would be the potential removal of exempt charity status for charitable CBSs, and the requirement to register with the Charity Commission. This would increase the regulatory burden and add to the time and costs of registration, due to the more detailed application required and the longer processing times at the Charity Commission.

However, this could be positive as charitable CBSs would be able to obtain a registered charity number, and being subject to Charity Commission oversight may increase chances of securing grant funding.  It would put charitable CBSs on a level playing field with other (registered) charities and on balance we welcome this proposal.

If the proposed statutory definition is introduced with retrospective effect, existing charitable CBSs would need to ensure that they meet the new definition or risk deregistration. A period of 18 months has been proposed to allow for any required rule amendments. We disagree with this proposal, because of the difficulties it may create for existing charitable CBSs.

We expect that some aspect of the proposed definition, such as the requirements to operate for the “sole” benefit of the community and for membership to be “open to all”, may be problematic for some organisations.  Moreover, we are of the view that introducing a statutory definition of ‘community benefit society’, distinct from a ‘co-operative society’ creates a false dichotomy between these two society variants.  Societies operate on a spectrum, and it is not always possible to say that one type solely benefits the community whereas another type only benefits its members.  It would also leave too much to the discretion of the FCA, leading to potential problems where the definition is applied in an inconsistent way as individuals move on.  We are urging the Law Commission to reconsider this proposal and instead look at defining ‘society’ more generally.

Overall, the potential impacts of the proposed changes are wide ranging. Of course, not all of the proposed changes will be introduced, and it will be really useful for the Law Commission to understand the views of existing charitable CBSs who are already operating.

What action should you take to influence the future of charitable CBSs?

This is a chance for you and your organisation to put forward your views and experiences to shape and improve the law. The Law Commission is keen to hear from organisations about the challenges they face to ensure these can be addressed. It is the first major review of society law in 175 years, so this opportunity does not come around often!

The consultation questions are listed in Chapter 10, on pages 178 to 201 of the consultation paper. We recommend reading through these questions and responding to the Law Commission setting out your views and the potential impact on your organisation.

The consultation is open until 10 December.