Disclosure for additional shares

A co-operative may need additional share capital from its members. There are a number of ways to achieve this.

Co-operatives are empowered to issue shares, provided shares are only offered to members. If these shares are additional to the minimum share subscription required for membership, then the co-operative may simply offer additional shares to its existing member base. It is not essential that the co-operatives’ rules specify that it may issue either additional shares or different classes of shares, however, for a new co-operative it would be a matter of good practice that the power to issue additional shares and different classes of shares is clearly set out in both the rules and in the formation disclosure statement.

The offer of additional shares can be a simple time bound offer or the co-operative may provide for a dividend reinvestment plan.

An offer of additional shares to members does not normally require a separate disclosure statement. The CNL makes no provision for a disclosure statement where the offer is merely an offer to existing shareholders58.

In a similar vein, offers of shares to existing members (shareholders) generally do not require disclosure by corporations59, however it would be usual that an offer to take up additional shares would require the co-operative to prepare terms of issue so that members can make a decision about whether to invest in further shares. The offer of additional shares may constitute a significant change in the position of the co-operative and this would be required to be included in any updated member disclosure statement required to be lodged with the Registrar. Additional shares may have different dividend or repayment rights that will impact upon the rights or obligations of existing shareholdings, such as membership shares. As such this will need to be included to maintain currency of the member disclosure statement60.

The terms of issue would describe the rights attaching to the shares such as:

  • whether they are capable of being repurchased by the co-operative upon request by the shareholder; whether there are any restrictions on repurchase such as statutory restrictions, restrictions under the co-operative’s rules or any special restrictions imposed on the particular class of shares.
       
  • whether the shares are transferable and any restrictions, costs or other requirements, such as transfer to another member61.
       
  • whether the shares must be fully paid on allotment or may be partly paid (the CNL requires a minimum part payment of 10%) and if partly paid whether the balance will be at call or by instalment.
       
  • whether the shares carry any dividend or access rights that are different from membership shares. If the dividend is not known, then an indication of how it will be determined should be disclosed.
       
  • whether there is any different right to priority of repayment for the additional shares – in other words, if the co-operative winds up which class of share capital is repaid first.

It is common for some agricultural cooperatives to offer members different classes of shares specific to the different services that a co-operative proposes to deliver. For example, members of the Batlow Apple Co-operative could acquire membership shares and ‘cool storage’ shares. The issue of cool storage shares enabled the cooperative to construct cool store facilities and the shares entitled holders to use a specific volume or area within the co-operative’s cool storage facility.

This same principle may work well for a renewable energy co-operative that proposes to construct different types of renewable energy generation plants, or for a health services co-operative that proposes different levels of health care service.

 

  • Information made available in respect of an additional share offer would be subject to the same requirements as to accuracy that attach to offers of other securities by a co-operative.
       
  • An offer of additional shares, like membership shares can be continuous, where the shares offered are of the same class. If the shares are likely to pay a dividend, then co-operatives can consider providing for a dividend reinvestment plan for shareholders to acquire additional shares. Dividend reinvestment plans, if any, would need to be included as part of the terms of issue for additional shares, and this fact would also need to be included in any member disclosure statement that is lodged with the Registrar.
       
  • It is a common practice for co-operatives to credit the share accounts of existing members with dividend or rebate payments, and, if the member so elects, to issue fully paid shares in respect of the accumulated amounts. Depending on the scale of these payments, this can be a significant source of reinvestment for a co-operative.
       
  • Share reinvestment plans, like all share issues, need to be managed to ensure that a member does not accumulate a large amount of share capital that would either breach the 20% limit or, if withdrawn, would adversely impact the co-operative’s financial position. The concept of community investment as an offer of securities to a large number of persons in small parcels will mitigate against this, although, the co-operative’s community engagement activities need to be continuous to accommodate the ‘churn’ of new and retiring members.