7.3 Contract law

Despite the absence of statutory regulation, a society offering community shares is still subject to contract law.

Those communicating information about an investment opportunity or advising people about an offer will have to pay damages, and may have the investment contract set aside, if the torts of deceit or negligent misrepresentation have been committed, if a contract term is broken, or if the Misrepresentation Act 1967 applies.

This may well be the case if losses were incurred by an investor who relied on the document, information, or advice in deciding to enter the investment contract and if the loss was due to a false or misleading statement of fact or any negligent statement.

It is therefore vital that all information provided in documentation, on videos or websites, at public meetings, and in any other communications with potential investors is accurate, is not misleading, and is the result of careful consideration.

The lack of statutory regulation, and consequently more limited protection for investors, only strengthens the case for developing robust standards of voluntary regulation and good practice; a responsibility that has been taken on by the Community Shares Unit.