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Co-operatives and capital raising

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17/10/2007

Summary

Co-operatives remain an important business structure, especially in agriculture and regional areas. While they are far less popular than companies, they still have significant advantages.

What’s a co-operative?

Co-ops have existed side-by-side with corporations for many years in Australia. Like a company, a co-op has members, a board and limited liability.

Importantly, however, each member of a co-op has only one vote, regardless of the number of shares held.

Co-ops are thought by many to be in decline, however, twelve of the 1000 largest businesses in Australia are co-ops. Well-known examples include Norco Co-operative Ltd, Golden Circle Ltd and Namoi Cotton Co-operative Limited.

Difficulties in fundraising

One of the difficulties that has faced co-operatives has been access to capital. Historically, this has been limited to members’ equity, profit retention or lender finance.

One response has been to list a non-member share class on a stock exchange, but this is only feasible for the largest co-ops.

A more cost-effective option for smaller co-ops is to issue ‘co-operative capital units’ or CCUs. 

What is a ‘CCU’?

A CCU is a fundraising mechanism particular to co-operatives.

While it generally functions as a debt instrument (like a debenture) it has the flexibility to be created with some characteristics of equity instruments, such as redeemable preference shares.

Provided the offer is only made to members, the prospectus provisions of the Corporations Act do not apply.

How can Fleming Muntz help?

Fleming Muntz has lawyers with particular experience in the niche area of co-operatives. One of our lawyers acted in a NSW CCU issue, as well as the take-overs of two significant co-operatives in Victoria and South Australia.

We can advise on aspects of compliance, fundraising and the particular importance of dealing with the co-operative regulators.

Important fine print

This update is for general information only. It is not a complete guide to the area of law. Competent advice should be obtained before taking any action.

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