Share offer targets

The total share capital required should be expressed as three fundraising targets:

  • The minimum amount of share capital to be raised, below which the offer will be deemed to have failed, and the investment project will not proceed
  • The optimum amount of share capital sought, which will normally be the total amount of capital required by the society for it to proceed with the investment project in full
  • The maximum amount of share capital to be accepted, above which some applications will be refused or scaled back, following the terms set out in the offer document

The offer document should state how any funding gap between the minimum amount and the optimum amount will be filled. For instance, the gap might be filled by scaling back the investment project, or by raising capital from other sources, normally in the form of debt. The cost of these other sources of capital should be clearly stated, together with an explanation of how this will affect shareholders.

If the minimum amount is not raised within the time period of the offer, including any extensions, the offer will be deemed to have failed, and applicants who have transferred funds should be refunded. The offer document should state the terms of the refund, detailing any administrative charge that may be made.

In most cases the optimum amount and the maximum amount will be the same. However, a society may include contingencies in its business plan explaining how additional capital in excess of the optimum amount will be used. Such contingencies may include provisions to replace debt with equity, to bring forward future investment projects, or to improve provisions for capital liquidity.

The offer document should also explain what will happen if applications exceed the maximum amount of capital to be raised. There are several different ways of addressing this:

  • Share capital can be allocated on a first-come-first-served basis, and the offer closed when the maximum amount has been raised.
  • Applications can be accepted or rejected on the basis of geographic proximity to the society.
  • The amount of share capital allocated to individual applicants can be capped or reduced.