CTM40960 | Particular Trades: mutual concerns: legal framework

For a body to be engaged in mutual trading there must be

• complete identity, as a class, between the contributors to the mutual surplus and the participators therein, see BIM24105,

• arrangements which ensure that the surplus ultimately finds its way back to the contributors and no arrangements for it to go to anybody else, see BIM24110,

• a reasonable relationship between the amount a person contributes to the surplus and the amount distributed to them on winding up, see BIM24115, and

• arrangements which place control in the hands of the contributors to the common fund, see BIM24120.

A body will not pass the tests for mutual trading if its legal framework does not include these rules.

If a body is to be seen as mutual, the contributors to its surplus must be entitled as a class to participate in the surplus. The surplus must be divided according to the amount of business they do with the body. However this does not prevent participators in year 50 from being paid a surplus on the basis of amounts contributed in year 1.