The modern co-operative: revitalising an essential common purpose legal form

The co-operative is not as central to UK life as it could and should be. In 2025, a Law Commission “once in a lifetime” review of the relevant law is due to report.

The small group of law firms specialising in this area, including Stone King, collaborated to provide common messages in response to the consultation, which ended in December.

We suggested the starting point should be purpose, rather than an assumption that new legalistic definitions are needed. 

A co-operative is defined by common purpose, in contrast to the basic structure of a company promoting private shareholder interest.

The co-operative should be recognised as a parallel legal form to the company, serving a distinct socio-economic function.

A focus on purpose clarifies the current problems, including narrow regulatory interpretation without accountability, which limits progressive development and the lack of a bespoke financial services regime for a social, rather than commercial, motivation for raising capital.  

The International Cooperative Alliance definition of a co-operative is: “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through jointly owned and democratically controlled enterprise”. 

This is supported by the equitable governing principles of one member one vote and open membership.

This is well-understood in other European countries, such as France, Italy, and Spain, where the co-operative is a standard local social solidarity institution. The Basque social economy in North-West Spain has thrived on a worker co-operative model. 

The UK has a noble association with the origins of co-operatives in nineteenth century workers’ associations: the name of the Rochdale Pioneers is resonant. Yet, today, there are only 7,000 registered co-operatives, which may be contrasted with 10,000 community interest companies, a legal form created 150 years later.

We have lived through a 50-year era where competitive private interest has been economic orthodoxy, but that is distinctly changing, creating opportunity for a modern co-operative model.

For example, Preston Council, among others, is seeking to establish a localised social economy fuelled by co-operatives, inspired by the Basque example.

The representations to the Law Commission from the aforementioned lawyers’ group were well-received.

In outline, we suggest a “Registered Society” (as opposed to a company) should be defined by a common purpose “other than the generation of profit or capital gain to members”.

As currently, the common purpose may be: collective (possibly allowing incidental financial gains); broadly for the general community benefit; or, more precisely, for charitable public benefit.

A critical point is that citizens should be free to define and pursue such purposes, rather than having to negotiate a regulatory gateway.

Given the range of types of co-operative, one member one vote is not a strict requirement, but voting should be similarly equitable and not based, as with a company, on shareholding. 

Accountability within co-operatives should be enhanced, to emphasis the duties owed by all participants to the common purpose.

The status of a common purpose organisation should inform financial regulation, so requirements are bespoke, proportionate, and clear.

The registrar/regulator, should facilitate citizen activity and the language and processes should be more accessible and straightforward.

The current Co-operative and Community Benefit Societies Act 2014 updated some language and issues, but it largely carried forward unrevised past concepts.

Current regulation is by the Mutual Societies Division of the Financial Conduct Authority, which carries forward past processes within an institution that is predominantly dedicated to its much greater commercial remit. 

The Law Commission review is welcome and timely, the consultation discussions have been positive and we are optimistic that positive reform, restoring the socio-economic importance of co-operatives, may follow.