4.2 Basic information
The following information should be provided in all offer documents, regardless of the type of offer, the only exception being where this information is not relevant to the offer:
Financial risk: All community shares offer documents should make it absolutely clear that anyone buying community shares could lose some or all of the money they invest, without the protection of the government’s Financial Services Compensation Scheme, and without recourse to the Financial Ombudsman Service. This warning should be prominently positioned in all offer documents and expressed in plain English.
Share capital: The nature of share capital should be explained, and the full terms and conditions that apply to shares should be provided. If withdrawable share capital is being offered, applicants need to know that the only way of getting their money back is by selling shares back to the society, that notice has to be given of the intention to withdraw share capital, that management committee members may have the right to refuse requests for withdrawal, and any other restrictions or conditions that have been placed on withdrawal. 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, if any, for selling or transferring the shares should be explained.
Asset lock: The provision of an asset lock within the rules of the society, and the impact this has on the rights of members over the residual assets of the society.
Democratic rights: The society convention of one-member-one-vote should be explained, and contrasted with the company convention of one-share-one-vote.
Investment limits: The upper and lower individual investment limits should be stated, and the reasons for these limits should be explained.
Restrictions on financial returns: The society’s rules on financial returns to members, whether as interest on share capital or dividends on transactions should be explained, as should its policy or practices for setting its annual interest and/or dividend rate. Reference should be made to the FCA’s policies restricting financial returns and the good practice requirement that such returns should only be paid from current operating profits.
Eligibility for membership: The offer document should make it clear who is eligible to become a member of the society and invest in share capital. It should clearly set out any criteria or restrictions expressed in the rules in the society, including minimum age requirements, geographic location, or transactional relationship with the society.
Governing document: A copy of the society’s rules should always be made available, typically on the society’s website, together with any necessary explanatory notes.
Some societies may also need to include information about the following matters, where these matters are relevant to the offer:
Money laundering: Societies issuing withdrawable share capital are exempt from money laundering regulations; there is no legal obligation on societies to carry out identity checks on applicants. However some societies have adopted the Co-operatives UK Code of Practice in this area, to reduce the risk of money laundering. Where this is the case, such practices should be outlined in the offer document (see Section 7.3.6).
Conflicts of interest: Conflicts of interest can arise in some share offers, particularly those made by new societies where the founders, management committee members or promoters have a financial interest in the outcome of the offer.
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