Membership
shares
Every producer who wants to become a member
of the cooperative will be required to purchase one or more membership
shares. The by-laws will stipulate the minimum number of membership
shares needed to be held by a producer in order to become a member.
Typically, each member is only required to purchase one membership share.
The cooperative can have only one class of membership shares and these
shares must have a par value. The par value of the membership shares
does not change. These shares are typically sold at a nominal value,
which is the par value. A cooperative does not have to file an offering
statement for an issue of membership shares in which the aggregate par
value of the membership shares that qualify a person for membership is
$500 or less.
Regardless of how many membership shares
must be purchased in order to become a member, each member has only one
vote on all matters that are to be decided by the cooperative’s members.
In other words, the right to vote is attached to membership in the cooperative
rather than to the membership shares. This is consistent with the
democratic cooperative principle of one member, one vote.
Membership in a cooperative is governed
by the cooperative’s by-laws. Generally, a person cannot become a
member unless the following conditions have been met:
-
the person has submitted a written application
for membership and this application has been approved by the cooperative’s
directors or by a person authorized to approve such applications; and
-
the person holds the minimum number of membership
shares and has complied with all other requirements for membership that
are specified in the by-laws.
In an NGC, there may be a requirement
that, in order to qualify for membership, the producer must also purchase
a minimum amount of a special class of investment shares. These shares
are outlined below.
A
special class of investment shares
The new Manitoba Cooperatives Act
includes a section that deals with a special class of investment shares.
This section is of particular interest to new generation cooperatives,
as it indicates that a cooperative’s articles can allow for a special class
of investment shares that
-
can only be issued to members;
-
does not have a fixed value;
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entitles or obligates the holder of these
shares to conduct a specific amount or percentage of business with the
cooperative. The specified level of business that the member must
conduct with the cooperative depends on the number or percentage of special
investment shares held by the member; and
-
can share in the surplus of the cooperative
if it sells its assets and winds up.
These special investment shares represent
the typical NGC marketing/delivery rights shares that tie delivery rights
to the level of equity invested by the member. By purchasing these
special investment shares, the producer acquires delivery rights to supply
the cooperative. Inclusion of this special class of investment shares
is an improvement from the previous Act, in which the only method to tie
producer supply to investment was by a par-value membership share which
could never appreciate in value.
Because investment shares (including special
investment shares) do not have a par value, they can appreciate or depreciate
in value. Thus, if the business or assets of the cooperative grows
in value, then the value of a producer’s special investment shares can
appreciate in order to reflect their underlying market value. Under
the previous legislation, when all shares were required to have a stated
par value, the potential for appreciation of share value was not possible.
Non-member investment
Because the cooperative’s articles may
set out that investment shares (other than the special class of investment
shares) can be issued to non-members, the cooperative can choose to offer
investment shares to the public. For example, communities could show
their support for the cooperative by purchasing this type of share.
Because investment shares are issued without par value, they have the opportunity
to provide a flexible way of rewarding investors and to appreciate in value
if the return on this investment (established at the time of purchase)
compares favorably to fluctuations in the general marketplace. This
feature increases the attractiveness of cooperative investment shares as
an investment opportunity for non-members. The investment shares,
however, could depreciate in value if the cooperative is unable to pay
dividends or repurchase the shares after first meeting its obligations
to its employees, suppliers, secured creditors and other creditors.
The cooperative’s articles also set out
the voting rights of investment shareholders. Subject to the articles,
no right to vote at member meetings is attached to an investment share.
However, the articles may provide that holders of investment shares may
elect a fixed number or percentage of the cooperative’s directors.
Investment shareholders cannot elect more than 20% of the cooperative’s
directors. Neither the cooperative’s articles nor unanimous agreement
of the cooperative can change this 20% limit. Thus the amount
of control that investment shareholders can exert on the cooperative is
limited. This allows control of the NGC to remain in the hands of
its members. If investment shareholders are allowed to vote, each
investment share entitles the holder to one vote. In others words,
holders of investment shares are given voting rights that are proportional
to the number of investment shares they own. This is in contrast
to the voting rights attached to membership shares, in which each member
is only entitled to one vote, regardless of the number of membership shares
he or she holds.
New Generation Cooperatives and the
offering of securities in excess of $500.00
1) Governing legislation
Sections 88 to 91 of the Manitoba Cooperatives
Act outline the regulation of securities issued and sold by a cooperative.
The Cooperatives Act indicates that the Securities Act applies
to the sale or issue of securities of the cooperative when the securities
may be issued or sold to the public. The Cooperatives Act
also indicates that the Securities Act does not apply to the sale
or issue by a cooperative of membership shares or the sale or issue of
securities that are restricted to members only. A difficulty arises
with respect to the sale or issue of special investment shares that convey
delivery rights to members in that subscribers to an initial offering of
special investment shares will not be members at the time the offering
is made.
2) Prospectus and registration requirements
In Manitoba, trading in securities is regulated
by the Securities Act and its regulations. The Securities
Act fosters investor protection by requiring the registration of people
who are allowed to give advice to the public concerning the purchase of
securities and by requiring that a prospectus be used when an entity sells
securities to the public. In some cases, however, certain types of
trades may be exempted from the registration requirement, the prospectus
requirement, or both.
3) Offering statement requirements
In cases where the Securities Act
does not apply, the cooperative must send to the Registrar an offering
statement and obtain approval from the Registrar before issuing any securities.
The Registrar indicates his approval of the offering statement by filing
the offering statement and issuing a receipt to the cooperative.
An offering statement must contain full, true and plain disclosure of all
the material facts relating to the securities to be issued, and the purpose
for which the money raised will be used. The Registrar may refuse
to file and issue a receipt for the offering statement if, in his discretion,
the offering statement contains such things as a false or misleading statement,
omits a material fact, or does not comply with the Cooperatives Act.
Before a security is sold, a copy of the
offering statement must be provided by the cooperative to the person who
is purchasing the security. The Regulations of the Cooperatives
Act, however, indicate that an offering statement is not required when
the securities issue is comprised of membership shares that have an aggregate
par value of $500 or less.
The preparation of a prospectus or an offering
statement can be a time consuming and lengthy process. Legal advice
should be sought by the NGC when considering the issue of securities.
In addition, consultation with the Manitoba Securities Commission and the
Registrar needs to be undertaken in order to determine the cooperative’s
reporting requirements.
Exemptions from the Requirement for
an Offering Statement
Section 89(7) of the Cooperatives Act
allows the Registrar to exempt a cooperative from the requirements
for an offering statement. In such instances, the cooperative would
be required to prepare a disclosure document. For more information
regarding possible exemptions, contact the Registrar.
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Sources:
Manitoba Cooperatives Act S.M. 1998,
c. 52- Cap. C223.
Manitoba
Securities Commission. Trading
in securities. Online. Retrieved May 4, 2000. www.msc.gov.mb.ca/trading.html
.
Manitoba Securities Commission. 1999. Order
No. 2526. Blanket Exemption Order: Offerings of securities pursuant to
the Cooperatives Act. Order dated June 10, 1999.