5.2 Choosing your legal form
There are many legal forms available to co-operatives in the UK. We outline the main options and what each means for your co-op.
Co-op legal forms
Co-operatives can operate under a variety of legal forms and the most popular are listed here.
Co-operatives UK has model rules for each of these legal forms. This makes it easier to adopt a legal form that meets the requirements of the law that governs that particular legal form and also reflects the co-operative values and principles.
Our Simply Legal guide has all the information you need. To help, we've provided a short summary of the key options.
What's important to understand is that the legal form your co-op chooses depends on:
- What type of business your co-operative will carry out.
- Who the members of the co-op will be and their interaction with the co-op.
- How you will fund your co-op.
- What the co-op will be able to do with any profits it makes.
- What the co-op will be able to with any remaining assets if it winds up.
Co-operative or community benefit society
Co-operative society
Key features:
- Registered with the Financial Conduct Authority
- Has to be carrying on a business industry or trade for the benefit of the members
- Created to meet the common social, economic and cultural needs of the members
- People or organisations can be members through purchasing share capital
- Only members can hold shares.
- Members are only permitted to hold one vote regardless of how many shares they hold.
This legal form is specifically for organisations that wish to be registered as a co-operative. It is suitable for organisations that wish to operate a business for the benefit of its members who come together to meet their common needs.
Capital can be raised through issuing withdrawable shares to members. A profitable co-operative society can pay dividends to members based on the member relationship and/or interest on shares held in the co-operative.
Capital can also be raised through issuing transferable shares. If you are opting for the inclusion of transferable shares into your society model we strongly advise you take expert financial and legal advice about the terms and the use of those shares. Unlike withdrawable shares transferable shares can be classed as regulated activity and are not exempt from The Financial Services and Markets Act 2000 (FSMA). Co-operatives UK's model rules do not allow transferable shares to be redeemable.
Community benefit society
Key features:
- Registered with the Financial Conduct Authority
- Has to be carrying on a business industry or trade for the benefit of the community
- People or organisations can be members through purchasing share capital
- Only members can hold shares.
- Members are only permitted to hold one vote regardless of how many shares they hold.
- Profits cannot be distributed to members and must be retained by the society to further the objects.
- Assets on dissolution must be distributed to another non-profit body or bodies.
Similar to a community interest company, this legal form is specifically for organisations that wish to benefit the community which may be a community of interest or a geographical community.
Capital can be raised through issuing withdrawable shares to members – most commonly through a community share offer. A profitable community benefit society can pay interest on shares held in the co-operative.
Capital can also be raised through issuing transferable shares. If you are opting for the inclusion of transferable shares into your society model we strongly advise you take expert financial and legal advice about the terms and the use of those shares. Unlike withdrawable shares transferable shares can be classed as regulated activity and are not exempt from The Financial Services and Markets Act 2000 (FSMA). Co-operatives UK's model rules do not allow transferable shares to be redeemable.
Charitable community benefit society
Key features:
- Registered with the Financial Conduct Authority
- Has to be carrying on a business industry or trade for the benefit of the community which must also be charitable in law
- People or organisations can be members through purchasing share capital
- Only members can hold shares.
- Members are only permitted to hold one vote regardless of how many shares they hold.
- Profits cannot be distributed to members and must be retained by the society to further the objects.
- Assets on dissolution must be distributed to another charity.
A charitable community benefit society is a charitable body that is democratically owned and controlled by those who support the philanthropic and social purposes of the society.
Currently, charity law does not permit such societies to register with, or report to the Charity Commission and as such they are not listed on the register of charities and do not have a registered charity number that they can display to make the public aware that the society is charitable.
HMRC decides whether charitable societies are eligible for charity tax reliefs. Such charities are referred to as exempt charities in law, but can also be referred to as charities for tax purposes.
Charitable societies often meet hurdles when applying for funding as often the funding body does not understand the charity's legal structure. However, like registered charities, such societies must comply with charity law in particular they are required to adopt a charitable constitution, known as 'rules,' must have wholly charitable objects and exist to benefit the public and so can, in this respect, meet the same eligibility requirements to access charitable funding.
Further information about exempt charities can be found in the Charity Commission's guidance on exempt charities.
This legal form is specifically for organisations that wish to benefit the community which may be a community of interest or a geographical community. All the activities of the community benefit society must be charitable in law and meet the public benefit test outlined in charity law.
Capital can be raised through issuing withdrawable shares to members – most commonly through a community share offer. A profitable community benefit society can pay interest on shares held in the co-operative.
Capital can also be raised through issuing transferable shares. If you are opting for the inclusion of transferable shares into your society model we strongly advise you take expert financial and legal advice about the terms and the use of those shares. Unlike withdrawable shares transferable shares can be classed as regulated activity and are not exempt from The Financial Services and Markets Act 2000 (FSMA). Co-operatives UK's model rules do not allow transferable shares to be redeemable.
Community Interest Companies
Community interest company (limited by guarantee)
Key features:
- Registered with Companies House and overseen by the CIC regulatory body.
- Has to adopt objects that meet the community interest test and an asset lock.
- People or organisations can be members.
Please note: These models are suitable for co-operatives that want to operate as a community interest company. The model the CIC regulator uses are not appropriate if you want to operate as a co-operative. Contact our advice team if you need to discuss this.
A community interest company limited by guarantee is suitable for a co-operative whose members wish to come together to combine their efforts to meet the needs of a particular community (either geographical or a community of interest).
Suitable for co-operatives that will be funded via member subscription, grants or debt finance this structure cannot distribute profits to members but must apply them to benefit the community. Assets on dissolution have to be distributed to another asset locked body such as a community interest company or charity.
Community interest company (limited by shares)
Key features:
- Registered with Companies House and overseen by the CIC regulatory body.
- Has to adopt objects that meet the community interest test and an asset lock.
- People or organisations can be members.
- A not for private profit legal form.
Please note: These models are suitable for co-operatives that want to operate as a community interest company. The model the CIC regulator uses are not appropriate if you want to operate as a co-operative. Contact our advice team if you need to discuss this.
A community interest company limited by shares is suitable for a co-operative whose members wish to come together to combine their efforts to meet the needs of a particular community (either geographical or a community of interest).
This legal form can issue share capital to members who can receive dividends on those shares - subject to a statutory cap. With the exception of share dividends, profits must be applied to benefit the community. Assets on dissolution have to be distributed to another asset locked body such as a community interest company or charity.
Private limited company
Private company limited by guarantee
Key features:
- Registered with Companies House.
- People or organisations can be members
- A not for private profit structure
- Assets on dissolution are distributed to another non-profit making legal form.
A company limited by guarantee is suitable for a co-operative whose members wish to come together to establish a not for private profit business. Suitable for co-operatives that will be funded via member subscription, grants or debt finance.
Profits are usually put back into the business to meet the objects of the business but can also be used to pay a dividend to members based on the member relationship.
Private company limited by shares
Key features:
- Registered with Companies House.
- People or organisations can be members
- A for profit structure where members can purchase shares in the business
- Assets on dissolution are distributed to another non-profit making legal form.
A company limited by shares is suitable for a co-operative whose members wish to come together to operate a commercial business for the benefit of the members.
This legal form is capitalised predominately by issuing share capital to members who can receive dividends on those shares as a financial reward for the success of the business.
Limited liability partnership
Key features:
- Registered with Companies House
- Must be established by a business with a view to making profit
- A for profit legal form.
An LLP is suitable for a co-operative whose members wish to come together to operate a commercial business for the benefit of the members.
Usually adopted as a structure by those that wish to remain self-employed but create a co-operative structure to work and benefit others in the same sector.
More details on the above legal forms
You can find more about the legal forms here in our Simply Legal guide
These legal forms are for co-operatives seeking to incorporate. If you wish your co-op to remaining unincorporated then our co-op constitution can be downloaded below.
Looking for another legal form?
Simply Legal
Simply Legal is a guide with all you need to know about legal forms and organisational types for co‑operatives and community owned enterprises.
Unincorporated co‑operative – model rules
These rules are suitable for a co-operative that has decided not to incorporate.
