5.10 Purchasing shares by instalments
Some societies, especially those with a high minimum shareholding requirement, may invite applications from people to purchase shares by instalments. There are several matters to be addressed when establishing such arrangements. If the society is making a time-bound offer and any purchase by instalments is likely to extend beyond the closing date of the offer, then it will be necessary to decide how such purchases count towards the fundraising targets, and how the society will meet its cashflow needs.
One solution is for the society to borrow additional capital from a third party, to be repaid by the instalment purchases. Another solution is to treat instalment purchases as an additional investment, so they do not count towards the minimum target but do count towards the maximum target, and thus are limited to the range between the minimum and maximum fundraising target (see Section 4.5.4).
Making arrangements so that applicants can borrow money to pay for shares is not considered to be good practice, unless the liability is borne by someone other than the applicants.
A society offering shares by instalments also needs to decide at what point the person acquires membership rights. Normally this will not be until the minimum shareholding has been purchased. Arrangements also have to be made to address the possibility that a purchaser might fail to maintain or complete all the instalments. A society would be within its rights to refuse membership and to deduct administrative charges from any refund, as long as these terms are clearly stated on the application form.
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