Establishing CoTech as a legal entity

It appears that the plan to employ a CoTech network co-ordinator could necessitate the establishment of a legal entity for CoTech. Of course there are also other reasons that might make us want to do this, for example wanting to own a domain name (domain names can only be registered to individuals or legal entities).

So if we are to do this, what form would we want it to take?

  • Should CoTech be a co-operative?
  • Would a Limited company or a Co-operative Society or something else be most suitable?
  • Would we want a tiered membership structure? Perhaps like Radical Routes, they have Full and Associate members, we have 52 co-ops but only 16 of them pay into the CoTech fund.
3 Likes

My preference would be to keep it simple and straightforward. Establish Cotech as a coop, private company limited by guarantee, the members coops are all directors.

I agree that a simple, straightforward approach seems sensible, why is a Private Company Limited by Guarantee, overseen by Companies House more simple and straightforward than a Co-operative Society overseen by the Financial Conduct Society?

If we did want to have a tiered membership structure, to reflect the fact that there are differing levels of commitment and involvement, for example some co-ops contribute to the running of CoTech via the fund and others don’t, how would that fit in with either of these two legal forms?

Personally I’m a big fan of the Somerset Rules, but I don’t know if they would be suitable for this use case.

Are these questions that experts such as @Sion and @coopsmark might have some advice for us on?

2 Likes

Cheers for this. Really appreciate you taking ownership of this thorny issue - probably the most complex and fundamental. I don’t doubt we will be able to thrash something good out here.

The premise of your argument is that the two alternatives are of equal simplicity. I am not so sure.

For me, the Private Company Limited by Guarantee is known pace and timeline, a known simplicity. We could set up a Private Company Limited by Guarantee with co-operative rules in a month, maybe two months tops. The Co-operative Society route has an unknown timeline to me, but I am assuming it is significantly slower and more complex.

For me the deciding factors in terms of legal formation are:

  • Pace I want to see this happen in the next six to nine months.
  • Flexibility I want us to be able to set our own rules that begin simple but can be made far more complex and for these to be able to be set in as exotic a way as we wish. I think it is also good to be able to iterate on these quickly. Here the Private Company route is much more simple. I understand Co-operative Societies are regulated more by law than other options, so therefore believe this to be less powerful.
  • Capability I want the legal formation to not encounter that many annoying things as we use it. I am concerned that a more sophisticated legal formation will have problems interacting with the wider world by virtue of its legal status. We want to be able to get a bank account down the line. It needs to do the thing that the co-ordinator requirres. What enables this?
  • Legibility Though we are a network of coops, the legal formation Co-operative Society is less familar to CoTech members (partly due to the above simplicity factors above). Ultimately in order to get this co-ordinator role over the line, we need to convince the coops within CoTech of the virtues of whatever legal formation we create. I fear that having a more complex formation will prevent this.

Perhaps we could outline our own criteria and this will help us make a decision?

However, in terms of Legibility and the mechanism of coops becoming directors of a Company Limited By Guarantee, I am not sure that 50+ coops will so easily sign up their coops as Directors. If I was doing this for Common Knowledge and was less involved in CoTech I would probably think “woof, that is a big legal responsibillity for us to take on and goes right up the risk register”.

In a Cooperative Society, levels of engagement will be encoded and we can transition the paper members into this without much fuss. For example, I think about my relationship with Webarchitects, which I am a member of formally, but (with due respect!) I don’t have to think about that much. So perhaps this works! I could become involved if I so wanted, but the option just to hang out is there.

Looking forward to reading responses.

Sorry, you misunderstood, I don’t know if that is the case, I’m more familiar with the Co-operative Society form as that is the one Webarchitects has had for the last decade, I was hoping that someone like @coopsmark could answer these questions…

1 Like

Hi all,

I’m a member of several co-operative consortia or secondary co-ops - these being the terms we use for for co-operatives of other organisations (often themselves co-ops).

  • Co-op Culture is a Company Limited by Guarantee (CLG) registered with an adaption of Radical Routes model

  • Platform 6 is a Company Limited by Guarantee (CLG) registered with an adaption of Radical Routes model. Currently looking to convert to a Co-operative Society (a relatively simple process) for various reasons including the ability of the Co-operative Society model to have member share capital. They are also waiting for the registration of a Sociocratic Co-operative Society Model with the FCA.

  • Co-operatives UK is a Co-operative Society and a kosher secondary co-operative being a co-op of co-ops.

Re the choice, it is 6 of one and half a dozen of the other.

Company form is better understood by other stakeholders, but society form is not much of a problem - few niggles like HMRC systems/forms are set up for companies.

Societies can have member share capital, and raise finance from the public without much of the expensive regulation around doing so.

Co-operative Societies can pay a dividend to members in proportion to their trade with the co-op. Useful for equitable distribution of surplus and paid before corporation tax (CT).

Co-operative Societies may find it easier than companies to get mutual trading status (MTS - exemption from CT) on the basis that they are merely a vehicle for their members to deliver their services and those members will pay tax on their own surplus. Companies are not barred from MTS but the Society form has a big history in these cases.

Companies are easier to carpet-bag or demutualise, indeed the conversion of a Society to a Company would often be the pre-cursor to demutualisation.

Companies can be formed slightly more quickly (one week vs. 3 weeks) and the rices are the same if you go through Co-operatives UK (approx £150).

Companies are easier to register with significant changes from the off the peg model documents - Companies House isn’t bothered while FCA will check.

Whichever legal form you use then you can structure your governance internally as you see fit, amend the governing document for free etc.

I commonly advise organisations who are struggling with the choice to set up a CLG as it can easily be converted down the line.

You can download the guide I created for the Transition Network from my buymeacoffee page:

6 Likes

Thanks @coopsmark that’s great!

I have had a look for the Radical Routes rules on their site but couldn’t find them, @leedscath are these available anywhere?

The Sociocratic Co-operative Society Model sounds interesting, @coopsmark are these rules publicly available anywhere?

2 Likes

You can find the RR model on Seed for Change site. The worker co-op model has consortium options.

Re the sociocracy co-op society model - it’s going to be an adaptation of the unreleased CUK worker co-op model, but I’m up to my eyeballs at the moment and it’s sitting in my backlog.

Hi, this is fairly off-topic so apologies, but since joining CoTech we’ve never been asked to pay into, or even made aware of the CoTech Fund. Maybe more members would pay in if it was advertised.

EDIT - found the relevant docs now - I guess not coming to meetings is the reason we didn’t know of it…

2 Likes

Sorry for the delay on this.

I’ve read the Cooperative Society model rules from the Coops UK site here: 5.5 Choosing your governing document | Co-operatives UK

I’ll admit I started skimming at page 15 or so, but I didn’t notice immediately problematic (except apparently we wouldn’t be able to be more than £10,000,000 in debt? What’s that about??)

Having said that, one proposal could just be that we spend £150 as CoTech to run through the options from Coops UK? Then get a proposal based on the options we get from them? Probably quicker than occasional messages on a forum