Registering a Community Benefit Society using DTAS Model Rules
This page provides information about the Development Trusts Association Scotland Model Rules – specifically relevant paperwork, process and fees in order to register your society under the Co-operative and Community Benefit Societies Act 2014.
Funded support through the DTAS Community Shares Scotland programme is available to assist eligible groups with this registration process and any subsequent community share offer.
Introduction to DTAS Model Rules
This is intended as a quick and accessible summary of the distinguishing features of the ‘Model Rules’ developed by DTAS. A detailed clause by clause guide to the model rules is also available on request.
What are model rules?
In order to issue community shares, an organisation must be register as either a co-operative society or a community benefit society.
Both of these, collectively referred to as mutual societies, are registered with the Financial Conduct Authority (FCA) and are owned and governed by their members. While co-operative societies exist primarily for the benefit of their members, community benefit societies must demonstrate benefit to the community as a whole, by fulfilling additional characteristics:
- They must fulfil a social purpose for the benefit of the community as a whole
- They should afford equal membership to all members, usually on a principle of one member one vote
- Any surplus accrued by the society must be used for the benefit of the community – profit must not be distributed among members
- The society must only use their assets for the benefit of the community – this is typically reinforced by adopting a statutory asset lock
Due to these additional criteria, community benefit societies are a suitable vehicle for all forms of community enterprise, maintaining eligibility for powers such as community asset transfer. They can also attain charitable status where applicable.
The governing document of a society is known as its set of rules. Since establishing a set of rules from scratch would be a costly and time-consuming process (around £950), the vast majority of new registrants will use model rules. Model rules are essentially templates that have been developed by sponsoring bodies and pre-approved by the FCA.
The Development Trusts Association Scotland (DTAS) is a sponsoring body and manages two sets of model rules.
Summary of the DTAS Model Rules
Led by the needs of its members, DTAS has established two sets of model rules:
1. The Charity Model
These rules are appropriate for an enterprise that wishes to operate as a standalone entity. They would typically be used by a newly established development trust or by a community enterprise without links to an existing organisation. These rules comply with the requirements of OSCR and are therefore suitable for organisations wishing to attain charitable status, however this is not a requirement.
2. The Hybrid Model
These rules create a formal link between the society and an existing community led organisation – typically a development trust with community membership. They are well suited to cases where an established organisation wishes to lead on a project – for example a development trust leading the establishment of a community energy project. These rules afford the existing organisation a level of influence over the society and allow surpluses from the society to pass to the existing organisation to benefit the community.
Key features of the Charity Model
The ‘Charity Model’ is a relatively straightforward set of rules, however does provide some additional protection to members resident in the society’s geographically defined community.
Any person or organisation applying for membership (typically through investment in a share offer) will become a Contributor Member. Any Contributor Member who is ordinarily resident in the the Society’s define community will also be eligible to become a Community Member.
Community Members must at all times make up three quarters of the total membership. They will also make up a majority of the society’s management committee, and no meeting shall be considered quorate unless a majority of Community Members are in attendance. Only Community Members may vote on certain resolutions, such as decisions to wind up the Society.
These provisions allow the Society to accept investment from outside their defined community, without diluting the influence of local residents. This ensures that the Society will be eligible for powers listed in the Community Empowerment (Scotland) Act 2015 such as community asset transfer and community right to buy.
These model rules also meet the requirements of for the Society to attain charitable status, should it be undertaking charitable activity. However, this is not a requirement and the rules can be used by non-charitable societies.
The ‘Charity Model’ is best suited to new start enterprises that do not require any links to an established organisation.
Key features of the Hybrid Model
The ‘Hybrid Model’ is a unique set of model rules, currently the only FCA-approved rules to create a formal link between the Society and another already established community-led organisation.
These rules have been designed primarily for use by development trusts in order to provide a vehicle for them to issue community shares for specific projects. It is often the case that established organisations such as these wish to fund community enterprise activity through a community share offer, however they must be established as a society to do so. These organisations – who may be companies or SCIOs – therefore need a linked organisation through which to issue the shares.
While a society must be owned and governed by its members, and cannot therefore be a wholly owned subsidiary of another organisation, the ‘Hybrid Model’ creates a formal link between the two organisations. This enables the existing organisation to take a development role in the formulation of the Society and to maintain a certain level of influence over its ongoing operation.
As in the ‘Charity Model’, the ‘Hybrid Model’ distinguishes between Contributor Members and Community Members. Additionally, the ‘Hybrid Model’ has provision for a Community Anchor Share to be held by the development trust (or other appropriate community led body). This Community Anchor Share will:
- Entitle the holder to 26% of the voting power on certain resolutions (such as any change to the Society’s rules, or a decision to wind up the Society). As these resolutions require a total of 75% of the total votes to pass, this essentially amounts to a veto.
- Entitle the holder to a certain number of reserved seats on the Society’s Board (usually a third and never more than half of the total seats).
- Provide for surpluses from the Society to be paid out to the holder. This agreement will be ratified by a legally binging Deed of Covenant.
Steps to Registration
- Please read through both sets of model rules and accompanying guidance notes carefully and decide whether they are appropriate to the needs of your community business. If helpful a member of the Community Shares Scotland team can guide you through them and/or answer any questions.
- You may also wish to contact other sponsoring bodies and consider using other model rules – for example Coops UK or the Plunkett Foundation.
- Carefully consider any changes or amendments you might like to make to the text in consultation with Community Shares Scotland (further guidance available).
- Complete the FCA Application form (found here: https://www.fca.org.uk/firms/mutual-societies-forms) in consultation with Community Shares Scotland (further guidance available).
- Email a scanned copy of the signed model rules and a scanned copy of the signed FCA Application form to firstname.lastname@example.org.
- Payment of fees to CSS and FCA (see further detail below)
- On receipt of the paperwork, CSS will check all the documentation and carry out a full registration service with the FCA. CSS will provide confirmation of successful registration with the FCA.
- Once your Society is registered, CSS would be pleased to support you to undertake a community share issue. A share issue should not be launched prior to the registration of the Society.
- Every year, the society’s secretary has to prepare and submit an annual return for the FCA (form AR30). The date you submit your return depends on the date of the society’s year end. You must submit your return within seven months of that date. See: https://www.fca.org.uk/firms/mutual-societies-forms
Fees and Charges
DTAS fee for use of the Model Rules:
Charge for DTAS members and CSS clients – £200
Charge for any other group – £400
Application fee of between £40 and £950, depending on whether you use model rules, use model rules with changes or freely draft your own rules
How long does it take?
The initial application process with CSS can take anything from a couple weeks to many months – completely dependent on time commitment from people involved and the complexity of the case. Once the application has been submitted, the FCA aim to register at least 90% of valid applications within 15 working days of receipt.