Ways Forward for the Co-op Movement 17.01.14

Members' Capital in Co-ops and Bencoms: Legal Framework

Ian Snaithwww.iansnaith.com

DWF LLPEdits:

“Handbook of Co-operative and Community Benefit Society Law”

To be published by Co-ops UK late 2014

Legal Framework for Capital

Shares can be: Withdrawable unless society is

bank. New £100K limit on holdings from 01.08.14 (was £20K) or

Transferable – no buy back by society but no holding limit or

Neither – nominal or membership fee – doesn't raise money

Legal Framework for Capital

Other share terms flexible subject to limited return principle – fixed low interest.

All risk capital – investment lost on insolvency

Credit unions' withdrawable capital allowed but regulated as banks & compensation on insolvency FSCS

Legal Framework for Capital

Loans from members can be: Secured over society assets Unsecured May well rank after existing

loans e.g. bank What the market accepts

All contractual debt with claim on insolvency – gearing issue.

Legal Framework for Capital

Investor Protection Factual inaccuracy can mean

contract invalid – contract law No prospectus needed if

shares/debt not transferable or at all for housing assocs & charities plus many small scale issue general exemptions

Limited financial promotion exemption for own debt and for shares if not transferable

Legal Framework for Capital

Main Points: Bank with member capital difficult

unless credit union(s) Much flexibility subject to limited

return rule – may be enforced more rigorously from 01.08.14

Societies prioritise other stakeholders over capital providers

Building societies and friendly societies possible but limits to business they can do

Legal Framework for Capital

Main Points: Bank with member capital difficult

unless credit union(s) Much flexibility subject to limited

return rule – may be enforced more rigorously from 01.08.14

Societies prioritise other stakeholders over capital providers

Building societies and friendly societies possible but limits to business they can do