Endnotes
  1. The Community Shares Unit is a joint enterprise by Co-operatives UK and Locality to assist co-operative enterprises to understand, raise and manage community investment through the issue of shares. The Community Shares Handbook and the Practitioner’s Guide to Community Shares are available in Part 5.

  2. http://www.uk.coop/developing-co-ops/community-shares

  3. Understanding Alternative Finance: The UK Alternative Finance Report 2014” Baeck, P., Collins, L. & Zhang, B., Nesta, University of Cambridge, November 2014, p62.

  4.  The Hive provides a step by step guide for community or employee buyouts of an existing business including information about the need to obtain independent advice.
  5. A distributing co-operative requires both a set of approved rules and an approved disclosure statement. A non-distributing co-operative requires a set of approved rules and MAY be required to have an approved disclosure document for incorporation. It is advisable to have a disclosure document for both co-operative types as this will be the information needed by potential ‘investors’ to decide whether to become members and shareholders.

  6. Co-operatives are incorporated under state or territory laws. For a co-operative incorporated under the CNL in New South Wales, its ‘home’ state is New South Wales. If a co-operative seeks to offer shares or other securities in another state or territory it may need to comply with federal law.

  7. Co-operatives UK and Locality published “The Practitioner’s Guide to Community Shares”, Brown, J, in 2011. This publication provides detailed guidance on how to engage communities and develop a plan for ongoing community ‘embededness’. There is a link to this document in Part 5 of the Handbook.

  8. Crowdfunding by a charitable organisation is likely to be controlled by the need to obtain a charitable fundraising permit. Crowdfunding campaigns that offer goods or services in return for a payment may be impacted by laws that govern the sale of consumer goods or contracts. Crowd sourced funding techniques to issue company shares are the subject of new (yet to be finalised) regulations. These regulations do not apply to offers of shares by co-operatives within their ‘home’ state: see Part 1.8 on Crowd Sourced Equity Funding.

  9. Pozible [Accessed 23 March 16]. Indiedgogo [Accessed 21 April 2016] Chuffed [Accessed 21 April 2016].

  10. Parliament of Australia. 2016. Corporations Amendment (Crowd-sourced Funding) Bill 2015. [Accessed 23 March 16].

  11. See Part 1.6.4 Start ups and Part 4 where disclosure is discussed more comprehensively.

  12. The CNL was passed as template legislation by New South Wales in 2012. Under the scheme, states and territories may either adopt the CNL as template legislation or they may pass separate consistent legislation. Check with the local regulator to see whether the CNL has commenced in a particular state or territory. A list of state and territory regulators is in Part 5 of the Handbook.

  13. Earlier Co-operatives Acts refer to the two types as being “trading” co-operatives and “non-trading” co-operatives, respectively.

  14. Takeovers are possible, however the process requires a decision by 75% of members, and will include a conversion of the co-operative to a company.

  15. A proprietary company is limited to 50 shareholders which may not provide sufficient numbers for a community share issue.

  16. A prospectus is required for issues of securities to more than 20 people in 12 months and where those offers raise more than $2million. The proposed changes to the Corporations Act to permit crowd sourced equity funding are yet to be finalized.

  17. The non-distributing form can be used for other purposes, and there are many examples of this legal form in the services sector in Australia: see National Health Co-operative Ltd; Bathurst Wholefood Co-operative Ltd 

  18. Non-distributing co-operatives that are formed to provide a public or charitable benefit may also be registered as a charity. Registration as a charity does not have any impact upon the ability of a non-distributing co-operative to carry out its enterprise, rather it provides charitable tax exemptions and an additional ‘layer’ of regulatory oversight from the Australian Charities and Not-for-profits Commission (ACNC).

  19. Section 149 CNL provides that a co-operative’s primary activity or activities must form the basic purpose for the co-operative along with comprising a significant (10%) contribution to the co-operative’s business. It is for the board then to decide which activities are the primary activities and how a member is required to support those activities. Whilst s149 CNL clearly states this is a matter for the board, these matters must appear in the co-operative’s rules, which are matters for the whole co-operative. Section 150 CNL further provides that the active membership for a distributing co-operative must require a member to use an activity of the co-operative for carrying on a primary activity.

  20. NSW Fair Trading. 2016. Co-operatives active membership [Accessed 23 March 16].

  21. Repayment of share capital resulting from cancellations can be managed to some degree by the co-operative issuing substitute securities – debentures or CCUs, but these effectively only extend the time for repayment. For small amounts of share capital there is scope, with the agreement of the member for the co-operative to retain this capital as a donation: see s163.

  22. A premium is an added amount to the price of the share. For example, if the fixed share price is $1, the co-operative or a member who is transferring his or her shares to a new member, may demand $1.10 for the share because there are limited shares and the demand for the shares may be strong.

  23. All co-operative types can have investor relationships through debt securities such as co-operative capital units or debentures. Debenture or CCU holders do not have voting rights in the co-operative.

  24. The offer of membership and shares in Hepburn Community Wind Co-operative was an offer seeking to raise approximately $9million to fund the initial construction of the wind farm and this was raised in a relatively short period of time.

  25. Currently, an offer of securities by a co-operative within its ‘home’ state is exempt from the disclosure requirements under the Corporations Act. If an offer is made outside the jurisdiction, then some provisions of the Corporations Act will apply to the co-operative.

  26. Finalised Guidance 15/12 “Guidance on the FCA’s registration function under the Co-operative and Community Benefit Societies Act 2014”, Financial Conduct Authority, November 2015.

  27. The Community Shares Unit is jointly managed by Co-operatives UK and Locality 

  28. Co-operative entities in the UK are now regulated under the Co-operative and Community Benefit Societies Act 2014. Broadly, a co-operative society is able to issue shares and distribute dividends or interest on investments, a community benefit society will have a broader public benefit or charitable purpose and is similar to a non-distributing co-operative under the CNL.

  29. Section 107 CNL permits a co-operative to have rules to allow members to request a repurchase of shares. A co-operative may not generally repurchase more than 5% of its issued capital in any year, and the board may refuse to repurchase where to do so would compromise solvency. It is possible for the rules to specify that only certain classes of shares may be able to be repurchased.

  30. The directors of a co-operative are charged with the same duties as directors of companies, in short, they are responsible and accountable for the good management of the co-operatives’ enterprise. A loss of share capital may present a challenge to financial viability. In all circumstances where there is a request or an obligation to repay share capital, the board has power to defer the repayment or to substitute the capital with some other type of security where repayment will compromise the financial viability of the co-operative.

  31. Section 19 CNL

  32. Additionally, in order to meet the definition of a ‘co-operative company’ under tax legislation, shares cannot be offered for trade on a stock exchange. A restriction on a transfer of shares would make the shares in a co-operative ineligible for listing on the Australian Stock Exchange (ASX).

  33. Section 80 CNL, the procedure for issuing bonus shares requires a special resolution: ss83-85 CNL.

  34. Sections 19 and 448 CNL

  35. Section 60 CNL – transfers from non-distributing to distributing; and section 404 CNL – transfers to company incorporation

  36. Sections 167-171 CNL

  37. In rare circumstances, a co-operative may wish to change the terms of issue of debentures and this can only be achieved if the debenture holders meet and agree to such a change.

  38. A ‘members only’ offer is an offer to members and employees of the co-operative.

  39. A secured debenture issue would require the creation of a personal property security in favour of the debenture holders, and where there are many debenture holders, there is a requirement for the appointment of a trustee to hold the security on behalf of the debenture holders and otherwise protect the interests of these lenders.

  40. CCU provisions were part of the uniform law, CNL, which was commenced in NSW and Victoria in 2014. The CNL or its equivalent has commenced in SA, Tasmania and NT (2015). The ACT is likely to commence in 2017.

  41. Member economic participation

  42. Issues of CCUs to the public are governed by more complex requirements than issues of membership shares or debentures – see Part 4

  43. The term ‘indirectly’ is used here because the federal law has no legal impact on these activities, but there is impact because the CNL replicates or applies the same requirements as the federal law.

  44. In 2014 the average community share offer was £327,000 ($AUS637,000) with the minimum investment being £10 – £500 ($AUS19 – $AUS967): Community Shares: Inside the Market Report 2015, Co-operatives UK & Locality.

  45. Community Shares: Inside the Market Report 2015, Co-operatives UK and Locality

  46. The Registrar’s discretion to approve a disclosure document is limited to ensuring that the document includes material specified under the CNL. There is additional discretion for the Registrar to require other information to be included but there is no guidance yet published in respect of what other information might be required and under what criteria. There are published ‘template’ disclosure statements provided by some Registrars.

  47. The CNL requires a distributing co-operative to lodge amendments to their disclosure statement within 14 days of any significant change to the co-operative’s circumstances, including by updating the disclosure statement with each year’s annual financial information

  48. Co-operatives considering issuing CCUs must ensure that their rules contain the minimum necessary rules in order to issue these securities. Model Rules prescribed under the CNL National Regulations contain drafts of the necessary rules.

  49. Community Shares: Inside the Market Report 2015, published by Locality and Co-operatives UK provides key information about investor motivation in community share offers from 2009 to 2014.

  50. Section 357(1)(c) permits the payment of a limited dividend on share capital. A limited dividend is prescribed under the CNL National Regulations and it is linked to 10% more than the relevant current rate of interest on a Commonwealth Bank term deposit. Non-distributing co-operatives are prohibited from paying dividends or making distributions of surpluses to members: section 19 CNL

  51. There is a good guide for community or employee buy outs in “Keeping Rural Business Alive: Community and Employee buyouts of rural Business“.

  52. Section 21 CNL requires both of these documents to be submitted for approval to the Registrar prior to the holding of a formation meeting.

  53. Section 70 CNL

  54. Where the project is an acquisition or buy out of an existing enterprise particular care needs to be taken in what statements are made. There is excellent guidance on how to meet this challenge and ensure due diligence in the process in”Keeping Rural Business Alive: Community and Employee buyouts of rural Business“.

  55. For guidance on preparing a community engagement plan, see “The Practitioner’s Guide to Community Shares”, Brown J.

  56. Section 68 CNL. There are different requirements for lodgement in some States.  For example, in NSW if the minimum share capital requirement is less than $200, there is no requirement to lodge any updated disclosure statement. However, a co-operative should maintain the currency of its disclosure to new members.

  57. Sections 70 and 122 CNL

  58. Note that a co-operative has power to compel its members to take up additional shares. There is a requirement for a disclosure statement and a special resolution by the co-operative for this to occur. This type of capital raising is not explored in this Handbook.

  59. Section 708(13) Corporations Act

  60. See 4.5.3

  61. It is possible for a co-operative to maintain a listing of persons who are interested in acquiring additional shares to facilitate transfers between existing members or new members.

  62. Section 338 CNL

  63. This requirement assists in determining whether the directors have any conflict of interest in recommending the take up of debentures and would include whether any director or officer receives payment in respect of their work or contribution in drafting the disclosure statement or terms of issue.

  64. Trustees for debenture holders are required if the issue is made to the public. A trustee is appointed as the ‘holder’ of the security over the co-operative’s assets and he or she must act on behalf of all debenture holders to ensure that the security remains intact and available in the event of insolvency or non- payment of the debentures.

  65. Section 350 provides for approval and also specifies minimum requirements for the terms of issue. A special resolution under s350 requires a majority of 66%. 

  66. Section 347 CNL applies the same requirements as though they are debentures.

  67. Two research papers published by the Centre for Entrepreneurial Management and Innovation, University of Western Australia, look at the potential for CCUs and options for structuring these securities:

    Structuring Co-operative Capital Units – Symposium Findings, Limnios, E., Watson, J. & Mazzarol, T. Centre for Entrepreneurial Management and Innovation, University of Western Australia, 2012.

    Co-operative Capital Units as a solution to co-operative financing, Limnios, E., Watson, J., Mazzarol, T. & Soutar, G. Centre for Entrepreneurial Management and Innovation, University of Western Australia, 2014.