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This page has been created to document some of the discussions on The Hazelhurst Community Supported Agriculture Co-operative Committee Email List.
See also the Somerset Rules Questions page.
Running of Meetings and Agendas
An From Yvonne on 20th November 2009:
I agreed to send some recommendation regarding the running of meetings and agendas for our group.
Please find two documents attached, which are my contribution to the item.
They are a synthesis of various boards and group chairing/ consultancy I have done and a Handbook for running non-profit and pastoral groups. They can be adapted for our purposes alongside the Transition Handbook recommendations and the statutory requirements of IPS legislation.
The important thing is that there is some clear acknowledgement of the three roles required and the distinction and separation between the three:
These are the governance role (mission, vision, strategic direction ), the executive role (action plans, milestones, objectives, resource allocation,) and the reflective role (how are the other areas doing, what needs to change, celebration of success).
I know it sounds like a tall order, but not really as long as we have a process for each element and we agree that this is trusted to work!
The two documents:
Community Land Trusts
On Nov 24 Mark replied to the question from Chris, "Is there any point in the society also being a Community Land Trust?", see the 11th November Committee Meeting notes for the background to this question: Hazelhurst_CSA_Committee_2009-11-22#Aims_and_Objectives.
If the society was asset locked then you would probably already be a community land trust (CLT); it's not a different legal form, but an organisational type. You don't register as a CLT, although it does now have a legal definition:
A Community Land Trust is a corporate body which
- is established for the express purpose of furthering the social, economic and environmental interests of a local community by acquiring and managing land and other assets in order -
- to provide a benefit to the local community
- to ensure that the assets are not sold or developed except in a manner which the trust's members think benefits the local community
To which Chris replied:
OK, great, that clears things up for me -- we *will* be a CLT than :-)
IPS BenCom vs IPS Co-op and Asset Locks
On 23rd November 2009 Chris asked Mark:
- With the BenCom model what happens if the organisation fails, could a £20,000 investment in shares by a member be repaid from the sale of the land?
On 24th November 2009 Mark replied:
Yes - provided that all creditors had been paid first. If there were insufficient funds then the member would receive a proportion. If all the members were repaid and there were funds remaining, then these would be subject to the asset lock.
On 23rd November 2009 Chris asked Mark:
- We felt we needed more information regarding asset locks, how they work what different forms they can take and what the consequences of them are -- are you able to help with this?
On 24th November 2009 Mark replied:
Asset lock – a restriction on distributing (or dividing) assets of an organisation to (or between) members (or shareholders), including on winding up, for example, by providing that the assets must be held for charitable purposes or passed on to other organisations with an asset lock.
Many organisations include a "common ownership" provision, which states something like "If on the winding up or dissolution of the Co‑operative any of its assets remain to be disposed of after its liabilities are satisfied, these assets shall not be distributed among the members, but shall be transferred instead to some other common ownership enterprise(s), or to the Co-operative Movement or some other non-profit organisation(s) promoting and supporting co-operative and common ownership enterprises, as may be decided by the members at the time of or prior to the dissolution."
This is sometimes referred to as an asset lock, but is not, as it can be removed by the members. The only truly asset locked bodies are Community Interest Companies, Charitable organisations (where it is unlawful to remove it) and Ben Coms who have elected to include an asset lock in their rules (the FSA would then prevent its removal).
On 23rd November 2009 Chris asked Alex:
- With the BenCom model what happens if the organisation fails, could a £20,000 investment in shares by a member be repaid from the sale of the land? Or do the rules saying that members shoudn't benefit mean that this wouldn't be allowed? Does this mean that a co-op could offer better security for investments than a BenCom?
On 23rd November 2009 Alex replied:
All IPSs are alike here: if the business fails, you pay commerical debt first, then you pay bank loans, and then the shareholders get a bit of whatever is left, pro rata (eg: the business goes under with assets of £100K and liabilities of £50K; shareholder capital was £75K. A member who invested £30 will get £20 back).
On 23rd November 2009 Chris asked Alex:
- I understand that whereas a BenCom can have a asset lock a co-op can't -- we want to asset lock the land for community agriculture use, would one way around this to be a co-op *and* a Land Trust? Or are there other ways of asset locking land in a co-op?
On 23rd November 2009 Alex replied:
Asset locks are tricky, and not easy to enforce. You can protect assets in the following ways:
- a regulator. Both co-ops and Bencoms are regulated by the FSA. They will protect assets according to the requirements of your rules. This regulation is somewhat weak, to be honest. The CIC regulator and Charity Commission are for this reason regarded in law as bone fide asset locks, and IPSs aren't.
- an asset lock in the rules. Any IPS can have a common ownership clause that protects assets from demutualisation. Bencoms always have this, but common ownership co-ops do too (the CSA rules (Somerset_Rules_CSA) are common ownership). Problem is, someone has to enforce them (see 1 above).
- as asset guardian. You can nominate another organisation as the ultimate beneficiary in the event of dissolution. That gives them a legal interest and the power to challenge in court any dodgy dealings regarding the assets, whether the regulator is doing their job or not.
Perhaps the Ben Com has slightly stronger protection (I believe you can't vote to convert to a different structure), but I would place equal faith in rules that have a well written asset lock, and provide for an asset guardian... as ours do. (See: Somerset_Rules_CSA#3.4.c)
On 3rd December Chris followed up on what Alex had said by asking:
According to Business Link an ISP BenCom with an asset lock can convert into a different structure, but only if it's a CIC:Non-charitable BenComs can apply an asset lock, which protects their assets for the future benefit of the community. BenComs that do so may only convert to a Community Interest Company (CIC). See the page in this guide on Community Interest Companies.
This appear to me to the the key feature of the BenCom asset lock.
Am I right in understanding that the Somerset Rules only restrict what other forms the co-op might be converted into with rule 2.7.c.ii which states that a 3/4 vote would be required to convert the organisation and rule 4.2 which prevents investors members voting on such a resolution?
...
I have seen that some co-op rules require 90% majorities for some decisions (though these are workers co-ops) -- would increasing the proportion of members required to vote in rule 2.7.c.ii be a sensible way of strengthing this rule?
On 3rd December 2009 Alex replied:
Yes that's perfectly possible to do. I usually hesitate to bind a co-op's hands too tightly, but if you want to make it really, really hard to convert - and I can see why you might - then that is certainly a feasible way to do it.
On 23rd November 2009 Chris asked Mark:
I'm personally still unsure why we should be a BenCom rather than a co-op, these questions spring to mind...
- How would the society benefit (non-members) of the community? Allowing non-members to access the land? Because some non-members would end up eating the food? In some other ways?
On 24th November Mark replied:
The key distinction between Ben com and co-op is that the members of a Ben Com don't have to have a trading relationship with the society - ie you can have members who simply invest in the society to support it rather than getting involved in any other way.
On 23rd November 2009 Chris asked Mark:
- Why would it be better to have the aim of benefiting the community rather than the members? Isn't it the case that we hope that our community will sign up en-mass and therefore benefiting the members would be benefitting the community? What is the drawback of a co-op that aims to benefit it's members?
On 24th November Mark replied:
See above - the members of a co-operative have a trading relationship with it. In Hazelhurt's case, this would be buying veg from it. The advantage of a co-op over a Ben Com is that you can incentivise trade with the co-op by offering a dividend - a Ben Com being unable to distribute profit, although it can pay interest on shareholding. This can be summed up as:
- In a Ben Com, the more you invest the bigger your potential return (interest) - there is no other way to distribute profit.
- In a co-op the more you trade with the co-op the bigger your potential return (dividend). This is further complicated by the fact that a co-op can also pay interest on shares.
On 25th November 2009 Mark said:
The choice between co-op and Ben Com is up to you. We are not recommending one over the other - it's your choice...
On 3rd December Chris asked Mark:
According to the FSA:Co-operative societies are run for the mutual benefit of their members, with any surplus usually being ploughed back into the organisation to provide better services and facilities.
Societies run for the benefit of the community provide services for people other than their members. There need to be special reasons why the society should not be registered as a company.
What "services for people other than their members" would you invisage that we would provide if we were to register as a IPS BenCom?
All I can think of is that we would perhaps sell produce to non-members and run some activities on the land which non-members could attend -- would these activities count as "special reasons why the society should not be registered as a company" or would we use some other reasons?
Or is this something we don't really need to worry about because it's not strictly enforced?
And on 3rd December 2009 Mark replied:
I think that your provision of produce and amenity to the wider community would qualify. You could also argue that the provision of healthy, low-carbon food is of benefit to the community too. Where it might (and I stress might) fall over is if you said box scheme members had to be IPS members - i.e. you cannot get that particular benefit without being a member - you would then have to argue other community benefits.
Again you could still argue it either way although the existence of a non-trading investor membership would normally favour the Soc. Ben. I notice that the Somerset Rules are a co-operative model with a non-trading investor membership and the FSA have agreed them.
Some people from the Committee attended a financing CSA workshop and one of the documents from this Community Investment in CSA by Jim Brown, covers the difference between a BenCom and Co-op, some extracts follow:
Becoming an investor, member and part-owner of a CSA venture is a powerful way for people to engage in its future. Member-investors have a vested interest in its success, and are more likely to become committed customers, volunteers, supporters and promoters of the venture.
...
Long-term investment in farming and growing ultimately depends on land tenure. Purchasing the freehold ownership of land through community investment may, in theory, be an ideal starting point for a CSA initiative, but in practice this is rarely the first step, because the entry costs are simply too high.
...
Fordhall Community Land Initiative... Tablehurst and Plaw Hatch Farm... Both these examples are products of special circumstances. In neither case does the CSA own both the land and the farm business; which would be the ideal combination for long-term investment by the community.
...
In theory, a CSA could combine all three business elements in a single corporate entity that owned and controlled the land, the farming business and the distribution.
...
The question of who should own and control the land, the farming, and the distribution mechanisms, lies at the heart of the debate about the future of CSA. Community investment could be the key to answering this question.
...
There are two types of IPS: a co-operative and a community benefit society. They differ from each other in two important ways. A co-operative can pay members a dividend, whereas community benefit societies cannot. A community benefit society can opt for a statutory asset lock, which is not available to a co-operative. Dividends and asset locks have a significant impact on the financial affairs of an IPS, so it is important for any organisation considering registration as an IPS to understand how these features work.
In a co-operative, dividends are based on the level of members’ transactions with the enterprise. For a CSA, where the members are also customers, the dividend will be based on members’ purchases. If the CSA is profitable, some of the profit can be returned to members in the form of the dividend payment. This encourages prudent financial planning. Members will usually prefer to pay a bit more, and get their money back in the form of a dividend, than pay less and run the risk of the CSA making a loss and getting into financial difficulties.
An asset lock is a legal device, also found in charities and community interest companies, that prevents the assets of the organisation being distributed to members. This means that members do not privately benefit from the growth in value of the venture, and that there is no private incentive to sell the venture or its assets. This in turn may encourage public bodies and grant givers to fund an asset-locked organisation. It also underlines the social nature of the investment to members and may encourage them to accept lower financial returns. IPS community benefit societies can choose whether or not to have a statutory asset lock, and although there is no statutory provision for an asset lock in an IPS co-operative, this type of organisation can write a voluntary asset lock into its rules.
On 15th January 2010 Chris emailed the list on the matter of the choice between a co-operative society or a community benefit society:
Alex pointed out the Community Shares site, http://communityshares.org.uk/ and there is lots of good info on there, I have listed it on a new wiki page for matters relating to shares:
One great nugget I found there is the clearest description of the differences between a IPS Co-op and a IPS BenCom that I have found:
Factsheet 6: Legal structures
There are two main types of IPS: bona-fide co-operative societies and community benefit societies. The main difference between these two types of IPS is their relationship with members.
Co-operative societies are run for the mutual benefit of members whose membership is based on their transactional relationship with the society, either as customers, employees or suppliers. In addition to the interest members receive on their share capital, members might also receive a dividend on their transactions with the society. The purpose of the dividend payment is to encourage financial prudence whilst ensuring the principal stakeholders are fairly treated. Members can decide at the end of the financial year to return part of any surplus to members, based on the scale of the members’ transactions with the society.
Community benefit societies are run primarily for the benefit of the broader community, rather than just the members of the society. Membership is open to anyone who supports the objectives of the society. Community benefit societies can pay members interest on their share capital, but they cannot pay dividends to members on their transactions with the society.
...
The choice between registering as a co-operative society or as a community benefit society is relatively straightforward. Co-operative structures are most appropriate for organisations whose members have a transactional relationship with the organisation, as customers, suppliers or employees. Community benefit structures are more appropriate for organisations that aim to serve a broader community purpose and do not have a transactional relationship with their members.
This really seems to make it really clear that a co-operative society rather than a community benefit society is the most suited to this project.
And another email in this thread was sent on 16th January 2010:
> - http://wiki.transitionsheffield.org.uk/Hazelhurst_CSA_Shares
Another document linked from there, by Jim Brown, 'Community Investment – Using Industrial and Provident Society Legislation' which was commissioned by Co-operativesUK, has some sections which cover this issue -- the difference between a IPS Co-op and a IPS Bencom and goes into some more detail:
There are two main types of IPS: bona-fide co-operatives and societies run for the benefit of the community.
Co-operatives are run for the mutual benefit of members who ‘use’ the services of their society. This is based upon common economic, social and cultural needs or interests amongst the members. Typically, this common need or interest will define their relationship with the co-operative as a service user, customer, employee or supplier. Co-operatives have open membership – there should be no artificial restrictions on membership, and it should be open to anyone who meets the criteria for membership. Recent guidance from the FSA says that co‐operatives can have investor-members who are not otherwise users of the society’s services. Co-operatives can pay interest on member share capital and a share of the surplus, or dividend, based on the level of transactions with the society.
Community benefit societies are run primarily for the benefit of the community at large, rather than just for the members of the society. This means they must have an overarching community purpose reaching beyond their membership. Applicant enterprises must also have a special reason for being a community benefit society rather than a company, such as wanting to have democratic decision-making built into their structure. Although community benefit societies have the power to pay interest on members’ share capital, they cannot distribute surpluses to members in the form of a dividend.
Like companies, IPSs have limited liability status, but otherwise they are significantly different to corporate bodies registered under the Companies Acts. IPS legislation has a number of unique attributes that make it the ideal format for community investment initiatives. These attributes include:
Shareholder democracy: One-member-one-vote, regardless of how many shares the member holds. Members have the collective right to appoint and dismiss directors, accept directors’ recommendations for interest and dividend rates, and determine the affairs and rules of the society.
Withdrawable share capital: Societies have the option of issuing withdrawable share capital. This type of share capital is withdrawable by the member, subject to any conditions stated in the rules of the society. (IPSs can also issue transferable share capital, in the same way as companies.)
Limits on shareholding: All members must purchase at least one share in the society: IPS legislation contains no equivalent form to a company limited by guarantee. Individual members cannot hold more than £20,000 in shares, but there is no limit to the size of shareholding by one society in another.
Limits on share interest: The interest payable on shares must be limited to what is “necessary to obtain and retain enough capital to run the business”. IPS co-operatives can also pay their members a share of the profits based on their transactions with the society, called a dividend.
Asset lock: Community benefit societies can install an asset lock that prevents the society being sold and the proceeds distributed among members. This is similar to the asset locks available to charities and community interest companies.
(Page 7 to 8)
...
More than two-thirds of the IPSs listed in Tables One and Two are community benefit societies. The choice whether to register as a co-operative or a community benefit society should be straightforward, but the boundaries between the two types of IPS are becoming increasingly blurred in practice. The FSA has accepted that co-operatives can recruit members whose only relationship with the enterprise is that of investor. This is the case for all the wind energy co-operatives in Table One: it is simply not possible for the members of these co-operatives to be customers because the electricity is fed directly into the National Grid and sold to electricity distribution companies, who in turn sell it to the end-user. The members of these co‐operatives are strong supporters of wind power, which they believe is of benefit to the broader community. Nearly all of the community-owned stores listed in Table Two are community benefit societies, despite the fact that their members are highly likely to be customers, and, more closely fit the co-operative model. One of the defining principles of co-operation is concern for community, which commits all co-operatives to work for broader community benefits.
From a community investment perspective there is not much difference between a co-operative and a community benefit society: both can issue either transferable or withdrawable share capital, and both can offer the same interest rates. The main difference is that community benefit societies are exempt under the Prospectus Regulations 2005 from having to issue a prospectus when offering transferable share capital. Another major difference is the legislation allowing community benefit societies, but not co-operatives, to introduce an asset lock. An asset lock may influence an investor’s judgement about the financial and social return being offered. Ultimately, the choice between registering as a co-operative or a community benefit society will be determined by fine judgements of intent and purpose. Ventures that put the interests of members before those of the broader community are best suited to the co-operative model, and vice versa.
(Page 27 - 28)
...
The choice between registering as a co-operative or as a community benefit society should be relatively straightforward (see page 6). If your community investors will also be your customers, or will be the primary beneficiaries of your venture, then a co-operative structure is probably most appropriate. If your venture will be for the benefit of the broader community, then a community benefit society will be most appropriate.
(Page 33)
Again I think the above makes is clear that being a co-operative makes the most sense for this project but also that there are some organisations which appear to have ended up the form which wouldn't appear to be most suited -- the energy co-ops where the members can't buy the electricity and the shops where the members are customers, but I can't see why that would be a good reason for us to opt for the less suited option.
On 17th January 2010 Chris asked Jim:
I have just been reading your 'Community Investment Using Industrial and Provident Society Legislation' pamphlet with specific reference to the sections on the differences between a IPS co-operative and a IPS community benefit society.
I was wondering why so many IPS co-operatives have been set up for community renewable energy projects where the members can't directly buy the electricity and thus can't get dividends based on their transactions with the co-op -- wouldn't a IPS community benefit society have been more suited to their purpose?
The IPS community benefit society is the form that a local renewable energy project has adopted, Sheffield Renewables.
And also why have so many community shops have been set up as IPS community benefit societies and thus they can't pay dividends to their members based on the transactions with the co-op -- wouldn't a IPS co-operative have been more suited to their purpose?
Were these mistakes or oversights or were there good reasons for adopting the particular form of IPS in these cases?
I'm interested because I'm involved with the Hazelhurst CSA project, I think you met some of the people involved at a one day event in Sheffield recently, which is discussing which IPS form to use as part of a discussion about what what rules to propose that we adopt.
Would you have any advice on the question of which IPS form to adopt, for a CSA project which intends to purchase land and employ growers to produce fruit and vegtables for members, like ours?
On 18th January 2010 Jim replied:
Thanks for getting in touch. Interesting questions you raise, and I'm not sure I know the answers, other than I think some of the early community wind farms like Baywind thought they couldn't use the community benefit model because the FSA required societies to give "special reasons" for being a community benefit society - even though, as you point out, it is questionable whether it is really a co-op because their members do not have a transactional relationship with the society, other than that of investors. In recent years the FSA and Co-opsUK have become far more flexible in their attitudes about whether organisations choose the co-op or community benefit model.
The key differences are the asset lock (community benefit societies only) and dividend payments (co-ops only). Dividends in IPSs are profit distributions based on transactions, not shareholding, on which interest is paid. Personally I think it is a great shame that it is not possible for a IPS society to combine both of these features - have an asset lock and a dividend - but they can't - maybe there should be a lobby for a change in the legislation. I can see that for your project it is a difficult call - a dividend would be an excellent way of rewarding loyal customer-members, but an asset lock might be important if you are trying to attract public funding.
I've written a final version of my paper on Community Investment in CSAs, which incorporates the lessons learnt through the workshops, which the Soil Association will be publishing shortly - so keep a look out for this - I'm also talking at The Soil association annual conference in February.
Rules - Consensus Decision Making
On 23rd November 2009 Chris asked Mark three questions on Consensus Decision Making and on 24th November Mark replied, the questions and answers have been arranged below to make them more readable.
Chris asked:
- Do you have some model rules that would be suitable for us that incorporate consensus decision making?
Mark answered:
If you were a limited company then no, but the legal situation with regard to IPS's is different. We are currently doing some work on this with regard to IPS law, to determine to what extent consensus can be built into IPS rules - watch this space
Chris asked:
- Has any coop already developed a set of rules for a IPS BenCom which incorporates consensus decision making?
Mark answered:
Not to my knowledge (see above).
Chris asked:
- Would changing the Community Finance Model Rules to replace sections with these model rules from Catalyst:
12. All decisions at general meetings shall be made by consensus following the fullest discussion in which all members shall be entitled and allowed to speak freely according to their consciences. By consensus is meant a situation where those not in agreement agree not to maintain an objection.
In event of consensus not being possible, the matter shall be referred to a second meeting, to be held not more than fourteen days after the date of the first meeting, when if consensus is still not possible the matter shall be decided by a majority of votes.
19. All decisions of the directors shall be made by consensus following the fullest discussion in which all directors shall be entitled and allowed to speak freely according to their consciences. By consensus is meant a situation where all directors present are in agreement on an issue, or where those not in agreement agree not to maintain an objection.
Or the consensus rules from one of your other sets of model rules, eg the Worker Co‑operative - Company Limited by Guarantee ones ... Count under the "6 free amendments" clause?
Mark replied:
If they were valid changes, then they would count.
On 25th November 2009 Chris asked Alex:
I've a few questions regarding consensus decision making and the CSA version of The Somerset Rules, I hope this is OK.
- Clause 2.3 says:
Which appears to me to be a neat way of allowing a general meeting to determine the exact form of consensus decision making that is to be used and to also refine this in subsequent meetings without the need to submit a rule change to the FSA -- is this the intention of this rule?2.3. The business of the general meeting and committee is governed by such standing orders as may be adopted by a general meeting; these will remain in force until they are amended or repealed by a general meeting. Such standing orders may not contradict these rules but may allow for the taking of a vote (other than a vote on procedure) to be deferred to allow for the development of consensus.
On 25th November 2009 Alex replied:
I couldn't have put it better myself.
On 25th November 2009 Chris asked Alex:
Do you have any examples of consensus based decision making standing orders that any co-op's have adopted or do you have some model ones?
On 25th November 2009 Alex replied:
Hmm. There are some around, but we haven't developed models. Actually, I think this is an area where co-ops would gain more benefit from discussing this among their members and developing new policies from scratch.
On 25th November 2009 Chris asked Alex:
Each section of your rules has a 'general aim' section, would it be appropriate to amend the Democracy one to include consensus decision making, for example by changing it to:2.1. The co-operative has a general aim of consulting with, empowering and serving its membership though the use of consensus based decision making.
And if this were done would this then serve as a general aim that would apply to the manner in which the Committee and the Commonweath Council make decisions and thus avoid the need for any further rule changes to do with consensus based decision making?
On 25th November 2009 Alex replied:
You could certainly adopt that modified aim. The result of doing so is that when annual social accounts were being prepared, the co-op would need to report to its members on how effective its consensus building was proving to be, in terms of decisiveness, strength of consensus, breadth of participation, etc. Adding those words to the aims would not oblige the committee or council to behave differently with respect to consensus - just report on whether they were doing so. If you wish to enforce consensus decision making, I would suggest holding a general meeting soon after registration at which appropriate standing orders can be adopted; these would then apply to all subsequent meetings
One general thought: many policies that I have seen on consensus decision making tend to focus on the point of decision (eg "Decisions can only be made by unanimous vote"). In fact, it is often more important to think of it as being about the process leading up to decision making. ("Any member may request that a newly-raised issue be referred to a consensus building process, led by a facilitator appointed for that issue, and lasting until the next meeting. Such a process should involve background research, one to one mediated discussions between parties with divergent views, and other meetings (including feelings meetings, drafting meetings and subcommittees) as may be deemed necessary by the facilitator."). This focus on the process can avoid the classic problems of pseudo consensus (many people don't like the decision, but are discouraged from expressing their doubts), paralysis (impossible to get agreement on any substantial change) and minority rule.
On 8th January 2010 Zena replied to a query about timescales and amendments to make the Co-operativesUK Community Finance Model Rules use consensus decision making:
Co-operativesUK would be able to amend our Community Finance Rules to require consensus decision making in the main, however, legislation requires percentage voting for transfers of engagements and dissolution. We would be able to draft a set of rules which required consensus on all decisions except those. I am not sure how many amendments this would require and, therefore, couldn't give an exact quotation for this work but the framework of our fee charging is a follows:
Society for the Benefit of the Community - Community Finance Model Rules with:
- 0 amendments - £660.00 +VAT
- 1 - 6 amendments - £790.00 +VAT
- 7 - 10 amendments - £1,070.00 +VAT
- 11 or more amendments - £2,000.00 +VAT
Mark may have already been over this with you so apologies if I'm covering the same ground, but it is possible to have a standard set of rules which require percentages for resolutions to be passed but then a set of secondary rules which cover the day to day practices. These secondary rules could specify that it has been agreed that the current working practice is to make decisions by consensus and that this will be reviewed by the membership from time to time. This would allow for consensus decision making to be embedded in the governance of the organisation without amending a model governing document (which could be costly).
If the Rules were amended to reflect consensus decision making it would still be necessary to draw up secondary rules which detailed how this system would work on a practical basis.
Rules - Co-operativesUK vs. Somerset
On 19th November 2009 Gareth proposed that we used the Co-operativesUK Community Finance Model Rules which cost £753 to register as an IPS BenCom with via Co-operativesUK.
On 29th November 2009 Chris proposed that we use the Somerset Rules CSA which cost £190 to resister as an ISP Co-op via Somerset Co-operative Services CIC.
The notes from the Committee meeting on 3rd December 2009 state that:
it has been confirmed by Dave Hollings that the support offered by CMS would cover those fees in both cases
On 24th November 2009 Mark answered a question from Chris, "Would we be able to use these (the Somerset Rules CSA) rules and be registered via CoopsUK?", he replied:
Yes and No - see above + we would have to charge the £950 statutory fee - much better to go through Somerset Co-operative Services CIC as they are their model rules.
Above he said:
We are currently doing some work on this with regard to IPS law, to determine to what extent consensus can be built into IPS rules - watch this space
The Somerset Rules have 3 classes of membership, food producers supplying or intending to supply the co-operative, persons buying produce or intending to buy produce from the co-operative and non-user investors, decision making is split 50/50 between the producers and buyers, on 25th November 2009 Chris asked Alex:
Can you explain in a bit more detail about the 3rd class of membership, Investors, and how it is envisiaged that this would work in practice?
Alex replied replied:
We think this is a good thing because there is not necessarily a perfect overlap between the people who use or benefit directly from a co-op's services, and the people who wish to support a co-op by investing money in it. Loanstock has been issued by many co-ops to non members precisely because some people don't want to participate in the co-op, but do have funds that they would like to lend the co-op. These social investors have hitherto found co-ops hard to engage with - loanstock is not as well understood as shares, and is subject to regulation under FSMA that can be tricky to comply with. IPS withdrawable shares are much easier for them to deal with.
Our basic rules actually allow these 'non-user members' to have limited voting rights - they can vote in general meetings as long as they only control 25% of the total voting strength. That allows them to veto major changes that would undermine the worth of their investment, but not exercise effective control of the co-op. We take the view that in common ownership co-ops (that is, co-ops that retain assets for mutual benefit) such voting rights are unlikely to be seen as important, so in the rules you have before you non-user members have no votes at all.
...
The reason that there are no other rules around that make this provision is that it was only in 2007 that the FSA announced that, in order to be more conisistent with co-operatives in continental Europe, they would permit co-ops to have 'non-user' members. All the other co-op model rules around predate this ruling.
See also the Somerset Rules Questions page.
Timescale - Co-operativesUK vs. Somerset
On 7th January 2010 Chris emailed Mark and Alex to ask "how long might it take after we got the amemdments and all the required information to you for the application to be processed?"
Alex replied the same day to say that:
Once you've decided on the final form of the rules, I'll produce the necessary paperwork and send it up to you. You then send it back to me for a final check, and I send it to the FSA. They take between ten days and three weeks to process it (that's based on my experience, rather than any explicit promise on their part). You then get a letter confirming registration.
The next day Zena replied from Co-operativesUK initially to explain their fees for amending their model rules and then to explain the timescales:
Registrations of new IPSs with the FSA take between 7 and 10 working days.
However, the amount of time it takes to complete the entire piece of work is dependent upon yourselves. We are able to complete drafting work relatively quickly (depending upon how complex your requirements are) I would envisage 2-3 weeks as a reasonable estimate for amending a set of Rules for you. The slower part of the process is often with the group obtaining the necessary identification documents prior to work commencing and then signing and completing the paperwork required for registration. If you are able to get together easily and get documents to us quickly we could have an IPS registered within a couple of weeks if necessary.
Relationship with Co-operativesUK
On 11th January 2010 Chris asked Mark:
As you are aware the Hazelhurst CSA Committee has been considering what rules to recommend that the project adopt, the two options which are being considered are:
- The Co-operativesUK Community Finance Model Rules 2008
- The Somerset Rules Co-operative Community Supported Agriculture
Which ever rules we adopt I understand that we will get membership of Co-operativesUK for one year and I can't see why the project wouldn't continue to annually renew this membership.
At the last Committee meeting concern was expressed that if we don't adopt the Co-operativesUK Community Finance Model Rules 2008 we would have our access to external advisors restricted.
Can you clarify if the adoption of one or other set of rules would have an effect on the the relationship and level of support we could expect to receive from Co-operativesUK.
The same day Zena replied:
Co-operativesUK would not be involved in the registration process of an organisation using the 'Somerset Rules'. The sponsoring body that owns these rules would take you through the registration process.
Upon registration your organisation could apply for membership of Co-operativesUK and would be considered in the same way as any other organisation applying. If you were to register using any of our Rules you would automatically be eligible for membership of Co-operativesUK and your first year's membership would be free of charge.
On 15th January 2010 Chris concluded:
Thanks, I think this makes it clear that any fears that people have that we would be restricting our "access to external advisors" if we opt to use The Somerset Rules, rather than the Co-operativesUK ones, is only a potential issue during the registration process
The discussion that sparked this email happened at the Committee meeting held on the 6th January 2010.
Relationship with The Soil Association
On 11th January 2010 Chris asked Kirstin:
The the Hazelhurst CSA Committee has been considering what rules to recomend that the project adopt, the two options which are being considered are:
- The Co-operativesUK Community Finance Model Rules 2008
- The Somerset Rules Co-operative Community Supported Agriculture
Concern has been expressed that administrative tools are are adopted which are compatible with the Soil Association and that rules are adopted which allow and enable the project to access to external advisors.
Assuming the project continues to aim to produce organic food and agrees to ask to join the Soil Association under one of your producer membership options (and I can't see why this wouldn't happen) would you anticipate that it would effect the projects relationship with the Soil Association if one set of model rules were used by the project rather than another?
The concern that sparked this email was raised at the Committee meeting held on 3rd December 2009 during the model rules discussion.
On 13th January 2010 Kirstin replied:
Thanks for your e-mail.
I've copied Mark Simmonds from Co-operatives UKs into this incase he has a different view, but as far as we're concerned, neither set of model rules excludes support from the Soil Association's CSA project. Generaly speaking, your organisational structure is not of concern to us, as long as you are operating an enterprise with community benefit at its core.
Organic Certification from the SA is handled by SACL (Soil Association Certification Limited). Your legal structure will be noted, but will not affect certification. i.e. you could certify with the SA, as long as you fulfil all the technical requirements regarding inputs, crop planning, rotation etc.
Hope this helps, and i look forward to hearing how you progress!
Track record of use of the Somerset Rules
On 15th January 2010 Chris emailed Alex to seek reassurances to allay fears which had been expressed at the Committee meeting 6th January 2010
At our last Committee meeting concerns were raised regarding the "track record of use" of the Somerset Rules.
My reading of the rules makes me think that, although they might not have yet been used by many organisations, they embody many years of practical experience from numerous co-operatives in the UK and further afield.
Is there anything that you could say that might allay the fears, uncertainty and doubts that some Committee members have regarding the origins of the Somerset Rules and the the track record of Somerset Co-operative Services?
Alex replied the same day:
I'm not sure - there is no denying that they are new rules, and I can only point to three co-operatives that are presently making use of them.
However, the innovations are not too radical: the use of withdrawable share captial as a way to raise investment has been practiced extensively by BenComs - see communityshares.org.uk. The different classes of share may be new to IPSs, but they have been employed by companies before now. The social accounting procedure is not our invention, but is copied almost word for word from the Social Accounting Network's recommendations of best practice. Most of the substantial clauses in the rules are in fact based on equivalent clauses in long etablished IPS rules. We have tried to be as conservative as possible while still creating something new! I can also assure anyone that in the process of developing these rules, the FSAs experts went through them line by line and picked us up on any potential problems - the rules went through dozens of drafts over the better part of a year.
Personally, although I will happily concede that CUK's Community Co-operative rules have an elegant simplicity (and are very cheap), I can't see how a BenCom (such as the CUK Community Investment rules) would be right for an enterprise of this sort.
Anyway, we must remember that rules very often determine relatively little and the most important thing is to register something, whatever it is, and get on with being a business...
Chris followed up with some further questions.
