Why does it cost more to register as a society?

When setting up, co-operatives can be registered in the traditional legal form, as a society, or as a company. Depending on which legal entity they opt for, they...

When setting up, co-operatives can be registered in the traditional legal form, as a society, or as a company. Depending on which legal entity they opt for, they can face different requirements in terms of costs and registration.

Co-operatives UK provides an online tool which helps organisations choose the most appropriate legal structure by answering a number of questions about their business.

The umbrella body for co-ops also outlines the process a new organisation should follow when considering a the co-operative model.

“The cost of registration depends on whether the society is using a set of rules working through a sponsoring body. The cost of registration ranges from £40 to £950,” a spokeswomen for the Financial Conduct Authority (FCA) confirmed. Information on registration fees can be found here.

According to Alex Bird, co-operative development consultant at Consultancy.coop, the base charges by Companies House for Companies, and the Financial Conduct Authority (FCA) for Societies are similar, at £40, but the additional work involved results in different total costs.

“For the basic £40 charge, the FCA will only register a society (co-op or community benefit) from a pre-agreed set of model rules, and only if they are submitted by the ‘owner’ of those rules,” he said. “Also, as societies are regulated as well as being registered by the FCA, they check over all the details of the rules carefully to ensure they comply with the law in every detail.”

Co-operatives UK offers three packages of support. Direct support is available, via a co-operative development body only, at £150 plus VAT. More advanced support options are also available at £250 plus VAT or £500 plus VAT.

“If one uses Co-operatives UK (the obvious choice for a co-operative) they have a fair amount of work to do to ensure the submission is fully compliant,” said Mr Bird.

“For this they have to charge, naturally, and their standard fee is £500 + VAT. They do a special deal for accredited member co-operative development bodies (CDB) at £150 including the FCA fee, but the CDBs then need to charge for their efforts as well.

“As a result, it costs a society around £500 to get registered. Other suppliers of model rules operate similar systems at similar or sometimes higher costs.”

In the case of co-operatives registering as companies, the Companies House acts as registrar and will accept applications from model rules or a bespoke set written especially, from any source.

“They charge a flat £40 for this, and also offer a special online rate using model rules supplied by them and signed electronically for a reduced fee of £25,” said Mr Bird.

“Model rules (aka Memorandum and Articles) are practically impossible to copyright, as once used for a registration, the resulting Memorandum and Articles are a public document and can be freely copied.

“Thus model rules are easily found on the internet, and can be used and altered at will. Anyone willing to rely on freely available model rules being legally OK can therefore register a company for a mere £40.”

The cost of registering a co-op can be even higher in Northern Ireland.

“In Northern Ireland, co-operatives and community benefit societies are registered by the Department of Enterprise, Trade and Investment (DETI),” said Jo Bird, from Co-operative Business Consultants.

“They charge £200 to register with model rules, considerably more than the minimum registration fee for a society in Britain, or registering a company. The registration process usually involves a query and takes six weeks.”

She added: “DETI makes all society and credit union documents freely available to all, on their online register. Instant access to rules, accounts, annual returns and so on, is very helpful for building trust and transparency with members and trading partners.”

Companies based in Northern Ireland are registered by Companies House, in the same way as companies based in Britain.

Timing can be another factor that organisations may want to take into account when choosing the right legal entity.

The FCA says it aims to determine at least 90% of applications within 15 working days. Societies can apply using this form. By contrast, limited companies take 48 hours to register via electronic incorporation while in the case of community interest companies the process lasts approximately two weeks.

A spokesman for the Companies House confirmed that registrations are generally processed within five days. Priority is given to applications submitted online, over 90% of the total number. Paper applications can take a few days longer to process, he added.

Companies House can also process applications on the same day for the price of £100, provided organisations make sure all required documents are included.

But registrations can take a day or two longer in the case of companies using sensitive words, which include the word “co-operative”, so groups wishing to use it when setting up as a company need to meet Companies House’s criteria.

These include provisions on it being owned and controlled by members, having open membership with members receiving dividends, and having these included in their rules or articles. The criteria are run through the Business Innovation and Skills department.

Dave Hollings, consultant and director at Co-operative and Mutual Solutions, said: “The FCA say they will do registrations in 15 working days, but were taking longer last year. Companies take less than a week (and can be done the same day) and Community Interest Companies take about 2 weeks.”

Alex Bird thinks Companies House documents are “relatively simply to complete” as “they do little other than scan and file the documents”. This means that registrations are generally turned around in a week.

He says: “If they wish to use an intermediary, they have to go through Money Laundering Regulations checks, which can add a few days if done by post, although most people do either do them electronically, or having advised the client and helped with the form-filling, get them to apply directly themselves.

“Registering a society is another kettle of fish altogether. The owner of the model rules has to act as an intermediary, and filling in the forms, checking them and sending by post back and forwards adds a few days. Then the FCA may take anything up to six weeks to process the application. Thus a typical turnaround time is six to eight weeks.”

Companies House simply registers companies and does not provide any advice; queries are sent to the FCA. Nor does it have any role in identifying what a company does, so the only way it can know if an company is a co-operative is if the word is included in its name. There are currently around 50 companies which do this.

The FCA does not advise individual applicants as to which legal form to pick but it provides an information note for societies. Some applicants are also choosing between a co-operative society and a community benefit societies, as opposed to choosing between a society and a company.

A Companies House spokesman said the organisation would work with the FCA to make sure their criteria are consistent with the provisions in the new Co-operative and Community Benefit Societies Act.

Auditing requirements for societies and companies do not differ much. According to the FCA, societies must appoint an auditor to audit their accounts if their turnover is more than £5.6m and assets are above £2.8m in the previous year of account. If a society’s turnover and assets in the previous year of account are below these figures then, if their rules permit them to do so, they can disapply the audit requirement. Where a society has disapplied the audit requirement they are however still required to appoint an auditor to produce a report on the accounts if their turnover in the preceding year exceeded £90,000.

“Audit rules for companies and societies are basically similar,” said Mr Bird, “with a similar cut-off below which accounts do not have to be externally audited by law.

“This is a recent change and has come about due to lobbying by Co-ops UK.”

He added: “However, the format required for societies is different from companies, and none of the electronic bookkeeping systems such as SAGE or Quickbooks can make up accounts in the required format.

“Therefore, all societies have the extra cost of transferring their books into a suitably formatted spreadsheet. Any accountant that regularly works with societies has this already prepared, but they do have extra work to do, and this will be reflected in the price.”

This situation ought to change, thinks Mr Bird.

“Surely the FCA, Companies House and the Charity Commission could agree a single audit format,” he said. “They’re all public servants and they all speak English. Once done, the electronic bookkeeping companies would have to adapt their software to suit.”

Mr Hollings would also welcome a quicker turnaround and lower prices to level the playing field between co-operative and community benefit societies and community interest companies.

“I accept that the FCA has to check rules and purpose, unlike Companies House for ordinary companies,” he said.

“There is another issue about whether the FCA is a registrar (checking whether rules are in accordance with the Acts) or a regulator (making interpretations of the law in registering societies). It has been moving from the first to the second, in which case there ought to be more detailed guidance on what is acceptable and what is not – which the current consultation process is clarifying somewhat.”

Mr Bird also believes that the difference in cost and timings, from £40 in a week for companies and £500 in six weeks for societies, is the result of the latter being regulated while the former are not.

He says: “The FCA could improve and offer a speedier service, but it would still be slower and costlier than for a company. Entrepreneurs seeking profit from companies are left to their own devices, and any breaches of the law have to be sorted out in the courts at the unfortunate litigant’s expense.

“Activists, not seeking unlimited profit, but limited profits and the public good (and, therefore, choosing to form societies or even charities) are not trusted and have to be regulated. Why?”

Mr Bird argues that, to provide a level playing field, both types of entities should be regulated.

“Surely, to provide a level playing field, we either need to regulate companies or de-regulate societies,” he said. “As someone who’s lost a considerable sum to an ‘entrepreneur’ using the company structure to avoid settling his debts, I think I’d go for regulation of both.”

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