7.3.5 Deposit taking
Section 4 of the Co-operative and Community Benefit Societies Act 2014 states: “a society which has any withdrawable share capital may not be registered with the object of carrying on the business of banking.” Section 67 of the same Act restates this prohibition but also creates an exception for small amounts of less than £400.
This means that any society that does issue withdrawable share capital must ensure that it does not engage in the business of banking. This is reinforced by Section 2(1) of the Co-operatives and Community Benefit Societies Act 2014 which requires registered societies to be carrying on a “business, industry or trade”. It can meet this requirement by ensuring that its withdrawable share capital is only used to finance its own trading activities, and not to fund the trading activities of other entities. This does not mean that a co-operative or community benefit society cannot invest in another legal entity under any circumstances. Section 2.8 of the Handbook sets out the basis on which a society can invest in another legal entity.
Defining what is meant by the business of banking and deposit-taking is difficult. Raising share capital solely in order to invest in other legal entities, or to make personal loans to members, could be interpreted as the business of banking, and should generally be avoided by co-operative and community benefit societies.
Building societies and credit unions are subject to their own legislation and regulations and are outside the scope of this Handbook.
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