Incorporated and unincorporated co-operatives

This section gives an overview of

  • Incorporated and unincorporated co-operatives
  • Why it’s important to understand the difference
  • The advantages and disadvantages of both options

If you already know that your co-operative will incorporate: skip this stage and go straight onto Governance.

If you already know that your co-operative will remain unincorporated: go ahead and create your governing documents. Your next step will be to take a look at the unincorporated options available to you in Legal and governance options explained.

While most groups choose to incorporate when setting-up a co-operative, in certain circumstances remaining unincorporated can be appropriate. You do not necessarily need to choose between the two now: you may need to work through the next few stages in order to make a fully informed decision.

You are likely to need to incorporate if:

  • You plan to own property and/or enter into contracts
  • You wish to limit your personal liability e.g. for outstanding debts
  • You want risk to be shared more evenly amongst members

In practical terms, choosing to incorporate means that you will register a legal entity, under an Act, with a regulator.

  • For example, you may choose to register a co-operative society with the Financial Conduct Authority: a co-operative society is a legal entity under the Co-operative and Community Benefit Societies Act 2014.
  • Or you may choose to register a company with Companies House: a company is a legal entity under the Companies Act 2006. The Hive will guide you through the process of registration.

Incorporation

Unincorporation

Incorporation means creating a legal identity for an organisation that is distinct from its members – a ‘corporate body’.

A corporate body is considered to have an identity in its own right, which means that it has rights and duties which may differ from those of its members.

For an unincorporated organisation the law does not distinguish between the organisation and its members; the organisation remains a collection of its members. 

Some further differences outlined

 

Unincorporated

Incorporated

Liability

Individuals may have to meet any outstanding debts personally.

Individual liability is limited to a guaranteed amount or unpaid share capital.

Ownership

It is not possible to enter into contracts in an organisation’s name and there are difficulties with members’ authority to do so.

May own property and enter into contracts in its own right.

Risk

Risk can be unequally distributed among members.

Risk is more equal.  All members are treated the same unless there is some other agreement in place.

Cost

There are generally no, or limited, start-up costs but may be subject to ongoing running costs

There will be start-up costs plus annual fees (although a relatively small amount).

Administration

None needed by law (unless a charity).

Ongoing records need to be kept and filed with the appropriate registry.

Privacy

Complete (unless a charity).

Certain details, such as governing body members’ names are on public record.

If you need more detail about the disadvantages and advantages of incorporation please refer to Simply Legal

Updated: 21/03/2016