5.5.1 Advance selling and pledges
Advance selling refers to the practice of inviting a person to pay a deposit towards the future purchase of share capital. A pledge is a non-binding statement of intent to buy community shares at some point in the future.
Pledge campaigns can be a useful way of gauging the level of community support ahead of a community share offer. It will provide a society with a contact list of supporters that will be invaluable when the share offer is ready to be launched. But it also runs the risk of failing to attract significant support and undermining confidence in the share offer. Pledges must be non-binding and supporters should not be repeatedly urged to honour their pledge.
Advance selling that asks investors to pay a deposit before the launch of a community share offer is only acceptable in special circumstances. These include circumstances where the society is competing with third parties to purchase a going concern, or proof of support is need to raise other sources of capital, or there is some other significant reason justifying the use of advance selling. Any money received from supporters should be held in a secure place, such as an escrow account, or by an independent third party who guarantees any money held on deposit (see Section 5.6). The terms and conditions of the investment must be clear and prominent. This should include the right to a refund at any time up to the closing date of the community share offer itself. There should clear information about when the community share offer will be launched or the factors that will determine the launch date. Investors should be informed of any delays to the launch date and reminded about their right to a refund. When the share offer is launched, investors should be sent the share offer document and invited to complete their investment or accept a refund. Any administrative charge applied to refunds should be reasonable and clearly stated in the advance selling literature.
If you have any questions or suggestions for new information you would like to find in the Handbook, contact the team by email at [email protected]