I need some informal legal advice on the Initial Ruleset i am writing to act as the basis for the Constitution of an Infrastructure Co-operative.
While i have looked at some of the references that were given in this discussion, Help and advice sought for starting a Co-operative I haven’t been able to find answers to all of my questions.
Who would Co-Tech members recommend as being good Legal Advisors to work with?
I’d probably take an “open source” direction and ask everyone to comment who may have been involved in setting up their own co-ops. My guess is that several of us may be able to comment helpfully…
Writing your own rules from scratch sounds like an expensive and time consuming task, won’t you will need to get them approved by the FCA?
I’d suggest using an existing set of rules, for example the Somerset ones:
Thank you for the first few replies.
@amunizp : Thank you for that. I’ve PM’d @Sion direcly.
@asimong : Yes, i’ll definitely take an Open Source route. “Many eyes make all bugs shallow.” 
@chris : It may be slightly expensive in terms of time and money, but that’s why i would like to get an informal legal opinion from a knowledgable solicitor first, so i know whether i’m on the right track, before my time and money disappears.
The idea that i want to implement is based on the ruleset that is being used by a housing co-op i lived in more than 25+ years ago. (Yes, i’ve asked them as well, but still waiting for a reply.)
They used a form of asset-lock that was embedded into their constitution when they were formed in 1973.
Basically, their constitution states that if the housing co-op is wound up, then all assets of the co-op have to be transferred to another housing co-op with an identical constitution.
This was inserted in order to provide defence from internal carpet-baggers, so they could not join the co-op in order to loot the assets.
I was a member of the TSB, as well as Alliance & Leicester, which both de-mutualised in the 80’s, and you’ve seen how well that worked. There were people joining Mutual Society’s in order to vote themselves the shares, instead of using the services provided by the Mutual Society to make their profit.
It’s a short-term profit-seeking behaviour that meant they made a small personal profit by destroying the long-term value in the business.
I’m trying to make a co-op constitution that would be as un-privatisable as possible, so no de-mutualisation could take place.
@chris : As far as i knew, the constitutions of co-ops don’t have to be registered with the FCA, same as the Articles and Memoranda of Limited Companies.
Has this changed recently?
Only if you’re writing some rules for a Co-operative Society or Community Benefit Society - is that what you are planning to do @BillySmith?
Depends on what legal structure you want to use.
All societies (which the vast majority of housing co-ops are) must have rules the FCA are happy with (and they charge £££ to check them).
The normal way to do this is to choose a set of model rules they’ve pre-approved. Here is the list of orgs that have published set(s) of model rules: https://www.fca.org.uk/publication/forms/mutuals-model-rules-sponsors-list.pdf
Pretty much all model rules for Community Benefit Societies now have an option to include a similar asset lock. As do all Community Interest Company rules (because all CICs have asset locks).
Then you probably want to make it a Society. Because Companies can ALWAYS choose to vote by majority to de-mutualise. Although you can of course still make it as hard as possible.
Personally my approach to this problem you have would be:
Lots of useful links. TYVM
Shouldn’t the “of” be an “or”?
I’m still looking at legal structures, but a registered Co-operative Society was the way i was planning on going.
A lot of the legislation has changed since the last time i researched this.
For Housing Co-op’s, i think that this is because they included the legal capacity to enter into a mortgage contract as one of the regulated activities during the last change in legislation.
While this page talks about Insurance, it doesn’t mention whether Public Liability Insurance is included.
I’ll start to do more research. TY
While you can make it difficult through the use of Minimum Valid Quorum for making changes to the Articles & Memoranda of Limited Companies, those Minimum Valid Quorum rules have to be codified themselves in the Articles & Memoranda, so the Minimum Valid Quorum rules may be vulnerable to a 51% share attack, which would lead to those defences being neutralised.
I’ve seen Limited Companies that succumbed to this form of attack, and be looted by 51% of the shareholders to the detriment of the minority shareholders.
I also got burnt back in '99 by one of these, hence my caution.
This is also one of my main reasons for choosing the Co-operative Model of doing business.
I want to make it as difficult as possible for any sub-group to screw over everyone else.
Trying to make it legally watertight before i start, is all.
One method i thought of last night was to set a Minimum Valid Quorum for changes to the Constitution of a Co-op to be 101% of the voting members.
As it would be impossible to achieve 101% of voting members, then no changes could ever take place.
I’m not sure that this would be legally valid, though if it is legally valid, then it would be one of the simplest ways of blocking these avenues of attack. Hence the request for some informal legal advice over a beer.
Another method that occurred to me last night was the method used by the Zaibatsu in Japan after 1945. They used interlocking webs of company ownership for PLC’s, where 45% of each company’s shares were traded on the public stock exchanges, but the other 55% was cross-owned by the other companies in the network, and was never traded.
This meant that they were able to get the utility of being listed on the stock market, but they were able to use the Mutual Defence systems to block any hostile takeover bids.
This method could apply to Co-ops as well, by cross-membership, where each co-op was a voting member of every other co-op in the network.
Again the main reason is to block any unwanted constitutional changes, that would neutralise those defences.
This could also be automated as a Mutual Defence Pact Co-operative, that is a purely legal entity, that is a legally-valid voting member of every Co-op, that is owned by all of the Co-op’s that use it, including itself.
The functionality of the MDP Co-op is that it will only vote on Specific Constitutional changes, and will always vote “No!”.
Add in Constitutional Clauses that require a Minimum Valid Quorum of 100% of voting members, as well as a Clause that says that the MDP Co-op has to be included in every vote on Changes to the original Constitution. If the MDP Co-op doesn;t vote, then it’s not a legally valid change, so doesn’t happen.
While this would be an effective defence, it would also be a constriction to doing business in future, changed circumstances.
This is solved by adding in a Clause to say that while the Constitutional changes required a large Minimum Valid Quorum to make them, the Operational Details were run as specified in the Policies & Procedures Manual.
Changes to the Policies & Procedures Manual required a smaller number of minimum Yes votes, but the Manual only covered the lower-level Operational parts of the Co-op.
So they had the Defences of the Constitution, but also the Flexibility of the Policies & Procedures Manual.
I find these Systems Design puzzles fascinating. The fact that i can use these structures to give better legal defences for myself is a bonus.
I’d suggest talking to Radical Routes about Housing Co-op Rules, they have a set that are FCA approved and will, no doubt, have an asset lock.
Yes, fixed.
That might be an additional thing for Housing Co-ops, but ALL Societies are registered and regulated by FCA (and have to use rules approved by them), like Companies House for Companies and Charity Commission for Charities.
I’m not sure why you are mentioning Public Liability Insurance? The mention on that page is just due to the fact that insurance companies must be authorised by them.
Co-ops registered as Companies can and do suffer this fate too.
I very much doubt it. But you might be able to make it so that 100% of members must agree to rule changes. I wouldn’t advise that though - as that’d also make it nigh on impossible to ever change your rules and there are plenty of valid reasons to want/ need to change them.
As I understand it to change the rules of a Company you need 75% of votes.
A very similar method is proposed (in large part as a protection against “carpet bagging”, but not only for that reason) in this awesome Co-op Clusters project Radical Routes have been working on for a while: http://radicalroutes.org.uk/publicdownloads/Co-opClusters_report_lowres.pdf
Yes, this is kinda sorta how Co-op Clusters work (but not quite as extreme as this).
Yes that is a big risk. Arguably a bigger risk than the one you’re trying to mitigate against.
Heh, I guess that could work.
Me too, although I note this great tweet from Bob Cannell (Suma veteran):
https://twitter.com/bobcannell/status/467333999573352448
I think rules are VERY important, but ultimately what makes a co-op or any project succeed are the people involved.
+1
The latest Radical Routes rules for Housing Co-ops certainly include provisions to protect against “carpet bagging”.
But as point of technical info, sadly Co-op Societies are presently unable to have a statutory asset lock (like CIC and Charities must have and Community Benefit Societies can choose to have)
People that I know who know their stuff on standard rules for cooperatives and how to modify them without pain include Mark Simmonds (Mark Simmonds - Co-op Culture) and Dave Hollings (CMS Coop :: About us). For housing, not sure if anyone has already mentioned it, but I would imagine that the Confederation of Co-operative Housing - http://cch.coop - would be a useful point of contact.
Hi @BillySmith.
Out of interest (and be entirely honest) is there a reason no one has mentioned getting legal advice from the national co-op organisation with an in-house legal team?
https://www.uk.coop/advice/help-start-co-op/registration
This was mentioned to me in a DM, but it’s great that you posted it here, so other people who are in the same situation can find it.
Uk.Coop have a program of advisers to help people with existing Co-ops.
One of the advisers based in London, is @harry
They also have a a smaller number of advisers that help with people who haven’t yet registered their Co-op.
@polly has put me in touch with them.
I’ll log what happens here.
Heh, good point @athertonjohn!
I’d also add that when it comes to the law around Co-ops and Community Benefit Societies the leading person is Ian Snaith who wrote the Handbook on the law.
Cliff Mills at Anthony Collins also very knowledgeable and active in the co-op world.
Not much use for us in the UK but yes a great resource - gotta love SELC!