You should identify in your business plan how the start-up of the co-operative is financed. If the co-operative is one with share capital (either distributing or non-distributing) then the co-operative will begin by offering its shares to people who have been identified as potential members.
Distributing co-operatives must have prepared a disclosure statement as part of their formation and registration. The disclosure statement becomes the document that can be given to potential members to invite them to become members and to buy shares.
A non-distributing co-operative is not likely to have a disclosure statement unless the Registrar has required it. If there is no disclosure statement, then a non-distributing co-operative can prepare a document that includes the share offer and provides information that would be normally included in a disclosure statement.
A disclosure statement or other share offer document is similar to a prospectus for a company share offer. It describes the shares, the rights and obligations of membership and sets out what a shareholding member can expect from their investment.
Disclosure statements or share offer documents are the co-operative’s primary marketing tool to raise finance. The content and accuracy of these documents are closely regulated and false statements or omissions that are misleading can result in prosecution and claims for damages by members.
If your co-operative’s rules require members to pay a subscription, getting your membership application forms out to potential members to join and pay the subscription is part of your finance raising activity.
Once the co-operative is registered, it has the status of a legal person. Like any other person or corporation, it can apply for a loan or credit from a financial institution.
Financial institutions lend when there is adequate security or where the borrower (the co-operative) can demonstrate a strong business idea that justifies the risk of lending. This can be difficult to show at the time of start-up.
Borrowing does not have to be from a financial institution. The co-operative can borrow from its members and from other people in the community. When a co-operative borrows from its members or from other people, it does this by offering debt securities called debentures or bonds. In the same way that willing community members might contribute to the initial financing of the co-operative before registration, there may be community investors willing to finance its start-up business operations for a financial return.
Offering debt securities to your members or to the broader community is regulated by requirements for full and accurate disclosure.
Learn more about offering securities in part three of the Community investment for Australian co-operatives – A Handbook.
Read a simple example of a disclosure statement for an offer of debentures to members.
If your co-operative is considering offering securities, then it is advisable to seek professional assistance. Access referrals, resources and other information.
For a brief overview of co-operative securities, read BCCM’s Crowdfunding for co-operative securities paper.