Understanding co-operative shares: Features and differences

Co-operative shares operate differently from shares in a typical company. While both types of shares represent an investment in an organization, the way they function and their impact on control and value differ significantly.
Characteristics of Co-operative Shares
- Membership-Based Issuance
- Co-operative shares can only be issued to members. A person must agree to become a member, including fulfilling any active membership obligations, before they can purchase shares. Membership often includes buying a minimum number of shares, known as ‘membership shares.’ Additional shares may be available but are capped so that no single member holds more than 20% of the total share capital.
- Voting Rights
- In a co-operative, shares do not carry voting rights. Instead, each member has one vote, regardless of the number of shares they hold. Voting is tied to membership status, not share ownership.
- Fixed Value
- They have a fixed or ‘par’ value. This means their value does not change based on the co-op’s performance. Unlike company shares, they are not traded on the stock exchange. Transfers of shares are restricted to other members and can be done at a premium if membership is limited. Shares are typically not bought or sold for capital gain, making it difficult for co-operatives to be taken over by external entities.
- Repurchase and Repayment
- Co-operatives have the option to repurchase or repay shares. This feature allows them to issue community shares but also requires careful capital management. Co-operatives must balance the need to return capital to members with the need to maintain financial stability.
- Limited Dividends
- Dividends on co-operative shares are limited. Co-operatives aim to benefit their members by offering services at competitive prices rather than focusing on profit maximization. Dividends are regulated and typically tied to a formula, such as 10% above the return on a 5-year bond. Members usually invest in co-operative shares to access services rather than for financial returns.
- Different Terms of Issue
- Co-operatives can issue different classes of shares, each with distinct rights and terms. For example, membership shares might offer basic rights, while other classes, like ‘Grandstand Shares’ in a sports co-op, might provide specific benefits such as discounted seats. Different shares might also be issued to fund specific projects, with associated benefits for investors.