The following information should be provided in all disclosure statements, unless the information is not relevant to the offer.
All offer documents should make it absolutely clear that anyone buying securities could lose some or all of the money they invest. This warning should be prominently positioned in all disclosure statements and expressed in plain English.
The nature of the share capital – whether they are membership or minimum holding shares or whether they are additional shares should be explained. This means explaining that there is no capital gain, what the dividend arrangements are, if any, and the full terms and conditions that apply to the particular shares should be provided.
If withdrawable share capital is being offered, applicants need to know:
- How they may be able to request a repurchase or when they are entitled to repayment,
- Limits or processes for withdrawing capital should also be fully disclosed, including the circumstances under which the co-operative may substitute another security in lieu of repaying the share capital,
- If only some of the shares are withdrawable, then the different circumstances applying to these different classes of shares, and
- The power of the board to refuse to repurchase share capital either completely or under certain conditions instead of repurchasing the shares.
It should be made clear that shares do not change in value, unless the rules provide for a reduction in share values, in which case the details of such provision should be made clear. If the share capital being offered is non-withdrawable, the scope and process, if any, for selling or transferring the shares should be explained.
The co-operative principle of one-member-one-vote should be explained, and contrasted with the company convention of one-share-one-vote.
The upper and lower individual investment limits should be stated, and the reasons for these limits should be explained.
Restrictions on financial returns
Restrictions on financial returns, such as dividends or rebates on transactions, under the co-operative’s rules or the CNL50, should be disclosed, along with any policy or practice for setting a dividend or rebate, in particular the requirement that dividends may only be paid if there is a surplus.
Conflicts of interest
Conflicts of interest can arise in some share offers, particularly those made by new co-operatives where the founders, board members or promoters have a financial interest in the outcome of the offer.
All disclosure statements must include information about the financial position of the co-operative. The type or scope of financial information will differ depending on whether the co-operative is a new or existing co-operative and the purpose of any capital raising. The accuracy of any financial information in a disclosure statement is paramount, and it is this aspect of the disclosure statement, more than any other, that exposes the co-operative and its directors to liability. Financial information in a disclosure statement should only be included in a disclosure statement when it has been compiled as a result of due diligence processes.
In security offers that are to fund the acquisition or buy out of another enterprise or asset it is extremely important that accurate financial information about the proposed acquisition is included in the disclosure statement. Where the co-operative is taking on an existing business the vendor of the business will have an interest in obtaining the best price. Scrutiny of financial information and valuation of the enterprise will be a paramount concern for the co-operative and its officers51.