Industrial and Provident Society - Forms of Financial Capital

Forms of Financial Capital

Unlike a company limited by guarantee, an IPS generally has a share capital. However, in a not-for-profit IPS the share capital may be limited to a nominal amount. Both types of IPS have a share capital, but it is usually not made up of equity shares like those in a company limited by shares, which appreciate or fall in value with the success of the enterprise that issues them. Rather they are par value shares, which can only be redeemed (if at all) at face value. The profits and losses of an IPS are thus the common property of the members. The share typically acts as a "membership ticket", and voting is on a "one member one vote" basis. The maximum individual withdrawable shareholding is currently set at £20,000 (although other IPSs may hold more shares than this). The Legislative Reform Order (Industrial & Provident Societies and Credit Unions) Order 2011 removed the limit for non-withdrawable shares. See LRO info from FSA. Since 2006, the FSA has been willing, in principle, to permit societies to have non-user investor members providing certain conditions are met and this, in combination with the removal of the £20,000 holding limit for non-withdrawable shares, may open up wider possibilities for co-operatives to raise finance from investors while maintaining user control.

It may be withdrawable share capital, an unusual form of finance which is treated as equity but may be withdrawn subject to specified conditions, and is relatively cheap for small co-operatives to raise as it is exempt from certain regulations applicable to conventional share issues regarding the publication of a prospectus. However, an IPS with withdrawable share capital is not allowed to carry on a banking business, presumably because a withdrawable share capital would make it impractical to ensure capital adequacy requirements are continuously met.