Guide: Our governance

Withdrawable Share Capital – a flexible option

In this section, you’ll find the outputs of an initiative undertaken in 2017 to review how withdrawable share capital (WSC) is being used as a form of funding by Retail Societies and the opportunities to extend its use within the current legal and regulatory framework.

The prompt for the initiative was a debate by co‑operative leaders of some of the larger retail societies about how members might, through greater use of WSC, contribute to the funding needs of societies (either existing or future).

Preliminary analysis

The first of two phases of work had the following objectives:

  • The production of a report by Anthony Collins Solicitors bringing together and summarising the current legal and regulatory position of WSC.
  • Detailed face-to-face interviews with each sponsoring society to understand the demand for new funding and capital and any concerns with the current WSC model.

As the two reports show, there was broad consensus that WSC was a valuable source of capital but, that if it was to be used more routinely, greater certainty was needed by societies that members would not withdraw their funds for a reasonable period of time. If it was to be considered as a core part of capital plans, societies needed to be sure they could rely on it not being withdrawn for a fixed time period – perhaps up to 5 years.   

This phase of work concluded that it was possible, within the current legal and regulatory framework, to restrict withdrawals for a set time period and thereby create the additional certainty that societies needed.

Phase two

Phase two was a programme of work to create a ‘toolkit’ of documents which would allow societies to raise funds but with the ability to withdraw deferred for a period. The toolkit provides for two different options for societies to use deferred withdrawable share capital:

  • Fixed Term Shares: This type of share is based on the member agreeing not to withdraw the funds during the period of the fixed term, as a result the member receives a higher rate of interest than that applying to WSC generally.  During the fixed term, there is still the right for the member to withdraw at any time.
  • Suspended Shares: This type of share is based on the right to withdraw being suspended and so the member has no right to withdraw during the fixed term.

The toolkit includes, for both types of shares: 

  • Draft wording for rule amendments
  • Application forms
  • Terms and conditions to be issued to applicants
  • Risk statement to be issued to applicants

The toolkit, which has been produced by Anthony Collins Solicitors and Co‑opertives UK, is available on the  Members' Money resource page.

Importantly, the production of these documents was being undertaken in consultation with the Financial Conduct Authority (FCA) in its capacity as registering authority under the Co-operative and Community Benefit Societies Act 2014, in relation to matters covered by that Act. Most societies are not regulated by the FCA because they do not generally undertake “regulated activities” which are not exempt.  However, the FCA remains responsible for maintaining the register of co-operatives and community benefit societies, and in that capacity has taken a strong interest in this work.

To ensure existing documents reflect the new option, Co-operatives UK has refreshed its Code of Practice on Withdrawable Share Capital.

Future work

To build on the good practice already evident in a number of societies and to continue to develop and share ideas, a Member Capital User Group has been established. This is hosted by Co-operatives UK and meets two or three times per year to share details of new capital raising programmes; member engagement activities; technology and problems and how these have been overcome.  The User Group will be supported by Anthony Collins Solicitors .

If you’re interested in the user group please contact Emma Laycock [email protected]