This page will help you to understand the difference between an 'incorporated' and 'unincorporated' co-op and the implications this has.
Most co-ops incorporate but there are circumstances where remaining unincorporated is most appropriate.
You don't need to decide now as there are more questions to answer which may help you make a more informed decision.
What is an incorporated co‑operative?
To incorporate means to create a legal entity for your co‑op business. This means your business will have specific rights and duties to follow.
Your co-op should incorporate if you
- Plan to own property and/or enter into significant contracts (such as employment contracts).
- Undertake significant trade.
- Need to own significant assets.
- Want to limit the personal liability of your members (e.g. debts) – the legal entity takes on the risk.
What does this mean?
This means you will adopt a legal form for your co-op that is separate to your members.
When incorporating, you register as a legal entity under an Act with a regulatory body. This means your co‑op:
- Has start-up and annual fees (although small).
- Keeps and files records with the appropriate registry.
- Makes certain details public, such as board and director names, with the appropriate registry.
We can help work out the details of this. For example your co-op could:
- Register a co-operative society or community benefit society with the Financial Conduct Authority. A co-operative society or community benefit society is a legal entity under the Co-operative and Community Benefit Societies Act 2014.
- Register a company with Companies House. A company is a legal entity under the Companies Act 2006.
What is an unincorporated co-operative?
An unincorporated organisation is more informal. This means:
- The law sees your co-operative as a collection of people (members), not a legal entity.
- Your organisation cannot enter into any contracts.
- It is difficult to give members the authority to enter contracts on the organisation's behalf.
- Your members have unlimited liability e.g. for debts – and these liabilities may not be shared equally among the members as often those with the ability to pay are pursued for payment of any debts.
This might suit your co-op if you have a more informal set-up and exposure to risk is minimal. Advantages of remaining unincorporated are:
- There are generally no/limited, start-up or annual costs.
- You don't need to declare details with public registers.
- There's little or no formal admin.
If you need more detail about the disadvantages and advantages of incorporation please refer to the Simply Legal guide, otherwise move onto the next step.