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The Community Shares Handbook

2.2.5 Multiple classes of shares

The FCA has approved model society rules with multiple classes of shares, including shares that carry no membership rights, shares with different membership rights, and shares with different terms and conditions. Each of these variations is dealt with in turn in this sub-section.

It is unusual for a society to issue shares that carry no membership rights, and where this does happen, it is normal to restrict the sale of these shares to members only. The reason for this is usually that the society already has an established membership, based on membership shares and annual subscriptions, and it wants to maintain the pre-eminence of membership shares over this second type of share. However, this type of arrangement might act as a deterrent to new investors, who are unlikely to want to pay an annual subscription in order to maintain their investment.

The FCA has approved model rules for societies with multiple classes of share with different voting rights. If a bona fide co-operative society wants to have multiple classes of shares, it must still uphold the principle of member democracy, although there can be sectional representation on the board of directors, and a class of membership can be excluded from voting on sensitive matters.

Multiple classes of shares can also be used to vary the terms and conditions of each class of share. For instance, a society may incentivise investment in a pre-start society by granting early investors preferential terms for withdrawal and/or preferential interest rates. Or a society may decide to establish a new class of share for a specific investment project, with its own withdrawal terms and interest rates, distinct from the terms applying to the original class of shares. Such arrangements place a duty on the society to maintain transparent financial accounting and reporting procedures.