4.5.6 Minimum and maximum shareholdings
Currently, the maximum amount an individual can invest in the withdrawable share capital of a society is £100,000. A society is free to determine its own maximum amount below this legal limit, as long as this is stated in the offer document, and is consistent with its rules. A society that is seeking to raise less than £1 million should consider restricting the maximum individual investment to 10% of its total capital requirements.This will reduce the risk of the society being dependent on larger investors, which in turn could create liquidity problems if a larger investor wants to withdraw share capital (see Section 3.2.7). Exceptions can be made for institutional investors, as long as safeguards are in place to protect the interests of other members. This is addressed in greater detail in Section 1.5.
Caution should be exercised if there is a large spread between the minimum and maximum individual shareholdings, to ensure that an applicant does not inadvertently end up with 30% or more of the total share capital. This could result in the applicant becoming a “connected person” and ineligible for tax relief (see Section 8.4). The same problem could arise if there is a large spread between the minimum and maximum fundraising targets (see Section 4.54). The problem can be avoided by ensuring that the maximum permitted individual shareholding is less than 30% of the minimum fundraising target.
It is up to the society to determine what the minimum investment should be. The minimum investment required by time-bound offers in recent years has ranged from £50 to £1,000. A low minimum investment makes investment more affordable to people on low incomes, and will encourage more people to invest because the stakes are lower. This will also increase the level of community engagement, by increasing the proportion of the target community that can afford to invest. Alternatively, setting a high minimum investment threshold may result in more capital being invested by fewer people, thus reducing the administrative cost of servicing the membership.
Higher minimum investment thresholds can be made more affordable by offering people the opportunity to invest by instalments. Investment by instalments could be incentivised by financial intermediaries offering bridging loans to allow the investment activity to proceed as soon as sufficient investors are identified.
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