IPSs may in general conduct any legal business except that of investment for profit.
Consumer, agricultural and housing co-operatives, working men's clubs, Women's Institute markets, allotment societies, mutual investment companies, friendly societies and housing associations usually incorporate as IPSs, as do some social enterprises. This process is facilitated by the existence of "model rules" developed by various federal bodies, which reduce the legal costs. Credit unions and building societies, which sprang from the same roots, are now governed by specific legislation.
IPSs fall into two categories:
IPSs are regulated by the Financial Services Authority (FSA), which took the job over from the Registrar of Friendly Societies (both being supervised by the Treasury). Note that IPS registration is quite separate from the FSA's function of regulating financial institutions.
Such businesses have been controlled in the past by the Industrial and Provident Societies Partnership Act 1852 and the Industrial and Provident Societies Act 1893. The legislation in the Republic of Ireland is based on modifications of the UK Industrial and Provident Societies Act 1893 - see the DETE website
Nowadays in the UK they fall under The Industrial and Provident Societies Act 1965 and subsequent legislation to the present day such as The Friendly and Industrial and Provident Societies Act 1968 (Audit Exemption) (Amendment) Order 2006 - Statutory Instrument 2006 No. 265 (which increased the audit exemption threshold level for industrial and provident societies to £5.6m).
Some industrial and provident societies that exist for community benefit are charitable. Under British law they are exempt charities and do not need to register with the regulator for charities (in England and Wales the Charity Commission). However, when the Charities Act 2006 comes into effect, that exemption is removed from all charitable IPSs in England and Wales. From that point, charitable IPSs have to register with both the FSA and the Charity Commission, except Registered Social Landlords, who register with the Housing Corporation.
Unlike a company limited by guarantee, an IPS generally has a share capital. However, in a not-for-profit IPS the share capital may be limited to a nominal amount. Both types of IPS have a share capital, but it is usually not made up of equity shares like those in a company limited by shares, which appreciate or fall in value with the success of the enterprise that issues them. Rather they are par value shares, which can only be redeemed (if at all) at face value. The profits and losses of an IPS are thus the common property of the members. The share typically acts as a "membership ticket", and voting is on a "one member one vote" basis. The maximum individual shareholding is currently set at £20,000 (although other IPSs may hold more shares than this).
It may be withdrawable share capital, an unusual form of finance which is treated as equity but may be withdrawn subject to specified conditions, and is relatively cheap for small co-operatives to raise as it is exempt from certain regulations applicable to conventional share issues regarding the publication of a prospectus. However, an IPS with withdrawable share capital is not allowed to carry on a banking business, presumably because a withdrawable share capital would make it impractical to ensure capital adequacy requirements are continuously met.
Recent UK legal developments include The Co-operatives and Community Benefit Societies Act 2003 which introduced the concept of an asset lock which an industrial and provident society can introduce to prevent specified assets being used for unintended purposes.