Features & Sacco Leadership

Understanding co-operative shares: Features and differences

The benefits of SACCO dividends How members can maximize their SACCO dividends: Types of SACCO shares: Can You Take a SACCO Loan Against Your Shares? how to increase SACCO dividends: How to manage share capital in a co-op: Co-operative shares

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

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

 

Andrew Walyaula
Author: Andrew Walyaula

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

Andrew Walyaula

About Author

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

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