5.5 Receiving funds

When a society makes a time-bound community share offer, the transaction to buy and sell shares is not complete until the share offer is closed and the society can be certain that the offer has achieved its minimum target for issuing shares (see Section 4.5). Until the society issues the shares, any money it has received from investors needs to be protected from the liabilities and contingent liabilities of the society.

There are a number of ways of providing this protection. The safest way is for the society not to receive payment for the shares until it is in a position to issue them. This could be achieved by informing applicants that cheques will not be cashed until the closing date of the offer, and only if the offer has met one or more if its fundraising targets. Or, the society could use some other  payment method that allows payment to be postponed to an agreed date. An alternative to this is to establish an escrow account to receive funds. An escrow account is where money is held by an independent and trusted third party. It is normal for organisations offering an escrow service to administer the offer: receiving and processing all payments, and concluding the transactions when the offer is closed. Ideally, the escrow service provider should indemnify the funds it holds from any liabilities, including bank failures. In all cases, applicants should be told when payment will be taken from their account; this will help reduce the incidence of applicants not having sufficient funds to make the payment. 

A new society making a share offer should endeavour to keep its liabilities and contingent liabilities to a minimum until it knows that the share offer has been successful. This means not entering into advance agreements on sales or purchasing, or limiting such agreements to levels that can be covered by existing reserves.