3.2.12 Use of profits
The FCA has different approaches to how profits can be used in a co-operative society and a community benefit society. In addition to this, both the Charity Commission and the Scottish Charity Regulator have agreed a policy about the use of profits by a charitable community benefit society. Interest on share capital is an operating expense for a society and must not be used as a mechanism for distributing profits or surpluses to investors. Section 6 of the Handbook addresses these matters in more detail.
The FCA’s registration guidance for co-operative societies draws on the ICA Statement on Co-operative Identity, and the fourth principle on member economic participation, addresses the use of profits in the following way “Members allocate surpluses in for any or all of the following purposes; developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.”
The FCA’s registration guidance for community benefit societies is much more emphatic: “any profit made by a community benefit society must be used for the benefit of the community”. This can include the profits being ploughed back into the business, or by being distributed to beneficiaries with objects the same as, or similar to, those of the society.
There are further constraints on how a charitable community benefit society may use profits. Both the Charity Commission and the Scottish Charity Regulator consider that a power to distribute profits is fundamentally incompatible with charity status and have agreed specific policy guidance for charitable community benefit societies with shareholder members, on how these members may be paid interest on their share capital (see Section 6.2).
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