Example of a debenture disclosure statement

Formation disclosure statement, Pingala Co-operative Ltd, 2016

Invitation to Members to subscribe for Community Investment Notes, Bathurst Wholefood Co-operative Ltd, 2015

Glossary terms

Co-operatives National Law

Each of the 8 states and territories of Australia had a Co-operatives Act. In 2012 they all signed an agreement to pass an updated law that was either identical or consistent with a template or model law. The template law is referred to as the Co-operatives National Law. All states except Queensland, Northern Territory and the ACT have now passed such a law. The impact of this is that there are no effective differences between the laws in one state and a co-operative formed in one state is recognised and able to carry on business in any other state (except Queensland, Northern Territory and the ACT) without any further requirements to register.

Community Shares

Community Shares is a term coined in the United Kingdom for shares issued by co-operatives. They have the same characteristics as shares issued by Australian co-operatives. The term is indicative of the purpose of these kinds of shares as being different from shares that investors buy and trade on a stock market. Community shares are not traded in this way, but represent a means by which ordinary community members can own and invest in local community enterprises.

Legal vehicle or entity

Persons wishing to start a business can be sole traders, start a partnership, or incorporate a company or a co-operative. Using a separate incorporated company or co-operative distances the business from the individual persons operating it. This means that if the business fails and there are debts to cover the separate incorporated company or co-operative is responsible for the debts, not the individuals. This is referred to as limited liability. Sole traders and partnerships do not have limited liability and the individuals who own these businesses under these types of structure will have personal liability for any debts of the business.

Private equity

Private equity is a share in the ownership of the company and it is referred to as equity. Often a company that was started by an individual will have a large or the majority of its shares issued to the person who started it. If that person wishes to get out of the business, he or she needs to be able to sell their large equity or shareholding. If the company is very successful, it will be easier to sell these shares if the majority shareholder offers them to the public as a way to exit the company with the most value for his or her shareholding.

Equity and debt securities

An equity and debt security is a share, and a debt security is a loan by an investor to the company. The most common debt security is a debenture or a bond.

Active membership

All Australian co-operatives must be designed so that there is an active relationship between members and the co-operative. This is achieved by having a rule that requires members to either transact with the co-operative or otherwise support its activities.

Debenture

A debenture is a medium to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.