4.5 Open offers
Purpose
Open offers are integral to the capital flow of established societies, enabling people to join or terminate membership, and as members, to invest or withdraw share capital. Open offers should not be made by societies if the board has suspended the right to withdraw share capital.
There are two main reasons why a society may make an open offer of membership and investment. The first is to stimulate and support the organic growth of the enterprise through increased membership and investment. The second reason for making an open offer is to provide liquidity for its share capital, with new investment generating the funds to cover withdrawals. This is appropriate where the society has a trading relationship with its members, and it is normal to expect a turnover in membership and investment.
Any society making an open offer needs to consider what action it may take if it attracts more share capital than it needs, and the associated problems of over-capitalisation. It should only use share capital to finance its stated business, industry or trade, and not invest it in other activities that are not part of its stated purpose. Societies may need to consider what actions it will take to prevent over-capitalisation. This could include introducing limits to the maximum individual shareholding of members below the statutory maximum. Section 2.3 provides further guidance on over-capitalisation and a society’s discretion to return members’ share capital.
Structure
An open offer is not time limited or linked to a specific investment plan, which means it is not subject to the same information requirements as a time-bound offer. An open offer should normally be restricted to societies that can demonstrate that their share capital is fully withdrawable. Any initial period when withdrawals were suspended should be over, and withdrawal notice periods should be no longer than one year. If there is a restriction on the proportion of total share capital that can be withdrawn it should not be greater than the anticipated inflow of share capital resulting from the open offer. The rules of many societies have set this restriction at 10% of share capital in any one financial year. A new society, planning to launch an open offer, at the end of an initial period where share withdrawals have been suspended, should prepare a share withdrawal policy statement, especially if it anticipates that it will need to restrict withdrawals.
If a society plans to launch an open offer when the withdrawal of shares is still suspended, then the offer should be restricted to existing members, and not be promoted to the general public. This practice can be justified where a society is, or might become, reliant on expensive external sources of capital, and members are willing to provide a cheaper source of capital.
Contents
An open offer document should explain why the society is recruiting new members and/or encouraging new investment, and how any additional capital raised will be used by the society. The document should focus on the broader principles guiding investment decisions by the society, rather than provide details of any specific investment plans. However, if the society is seeking to raise additional share capital for a specific investment project, it should consider making a time-bound share offer instead.
In comparison with a time-bound offer document, an open offer document should focus on the track record of the society rather than predictions about its future. It is, as ever, vital that high standards of accuracy, transparency and care are applied to drafting the document, as the board remain legally liable under contract and civil law.
Open offer documents should contain the following information:
Purpose: The document should provide a brief description of the aims, objectives and purpose of the society, and its reasons for making an open offer of investment. It should also outline the investment policies of the society.
Returns on investment: A summary of the interest paid on share capital and the social impact of the society over at least the last three years.
Capital position: A simple description of the capital position of the society, detailing how the level of share capital, reserves and long term debt have changed over the last three years, accompanied by information about how many members have joined and how many have left.
Supporting documents: The document should explain how readers can obtain copies of the annual accounts and social reports of the society for at least the previous three years, as well as an up-to-date copy of the society’s rules.
Other basic information: This should include any relevant information listed in Section 4.1 which has not been provided elsewhere in the open offer document.
Much of the above information is captured in the annual return (AR30) a society must make to the FCA. The Community Shares Unit has designed a finance summary template that societies can use to communicate this information to members and applicants, as part of the Community Shares Standard Mark.