1.2.3 Shareholder motivation

The motivation to buy shares in a society is wholly different from the motivation to buy shares in a company. This is reflected in the differences between company law and society law, and in how these corporate forms are regulated when they seek to raise capital from the public.

The commonly accepted purpose of private enterprise is to maximise the wealth of owners and shareholders. Shareholders are motivated by the revenues they receive in the form of dividends, and by the capital gains they may achieve through any increase in the value of the enterprise. Company law caters for this by allowing companies to use their profits to pay unrestricted dividends,  by giving shareholders full rights over the assets of the enterprise, and by allowing shareholders  to sell or transfer their shares to a third party at a mutually acceptable price.

Social enterprises are motivated by social objectives and social purpose. For social enterprises registered as societies, this social purpose is either for the mutual benefit of members in a bona fide co-operative society, for broader community benefits in a community benefit society, or, for public benefit and charitable purpose in a charitable community benefit society. These differences in investor motivation are enshrined in society law by means of limits on the financial return on investment, asset lock restrictions on the scope for capital gains, and caps on the amount of capital an individual can invest.  All of these matters are addressed in more detail below. 

The primary motivation for purchasing shares in a society is to support the social purpose and objects of the enterprise. Financial motivation is at best secondary, and any return on capital is better understood as compensation rather than a reward for risk taking.

Because of these differences in investor motivation, societies are normally exempt from financial promotions regulations when promoting the sale of share capital to the public (see Section 7)

 

If you have any questions or suggestions for new information you would like to find in the Handbook, contact the team by email at communityshares@uk.coop