# Restrictions on investment

If you’re considering launching a **community share offer** or investing in a co-operative, it’s important to understand the legal and structural restrictions involved. These rules are designed to:

* Keep co-ops focused on their social or community mission
* Protect investors from undue risk
* Support fair, democratic ownership

This page gives an overview of the key restrictions you need to be aware of in the UK context.

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<summary>💷 Capital Limits</summary>

#### **Individual Investment Caps**

In most co-operative societies, there is a legal cap on how much a single individual can invest - currently **£100,000**. This helps prevent any one person from having disproportionate financial influence.\
🔹 *Note: This cap doesn’t apply to other co-ops investing — only individuals.*

#### **Capped Returns**

Co-operatives often limit the return on investment to ensure the focus stays on community benefit, not personal profit. Any dividend or interest paid is usually modest and set at a level the business can reasonably afford.

</details>

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<summary>👥 Membership Requirements</summary>

#### **Investment is Member-Based**

In most cases, you need to be a member of the co-op to invest. This reflects the idea of shared ownership and mutual benefit.

#### **One Member, One Vote**

Regardless of how much you’ve invested, everyone gets just one vote. This preserves the democratic foundation of co-operatives - no buying your way to control.

</details>

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<summary>🛡 Regulatory Compliance</summary>

#### **Oversight by the FCA**

The Financial Conduct Authority (FCA) registers co-operatives and ensures they comply with legal requirements. This includes reviewing share offers for transparency and fairness.\
👉 *See also:* [*Financial Conduct Authority (FCA)*](/fundraising/community-share-offers/financial-conduct-authority-fca.md)

#### **Prospectus Rules**

If your share offer is large or being promoted to the general public, you may need to prepare a formal prospectus that details your finances, purpose, risks and governance.

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<summary>🎯 Purpose and Use of Funds</summary>

#### **Funds Must Serve the Co-op’s Purpose**

Money raised through share offers should go towards activities that benefit the co-op and its members - not be diverted to unrelated investments or external ventures.

#### **Asset Locks (Community Benefit Societies)**

If your organisation is a **community benefit society**, it may include an 'asset lock'. This means the society’s assets must be used for community good and cannot be sold off for personal gain, even if the society dissolves.

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<summary>🪙 Types of Shares</summary>

#### **Withdrawable Shares**

Most community shares are *withdrawable*, not transferable. This means they can’t be sold to someone else but can be withdrawn (i.e., repaid by the co-op) under agreed conditions.

#### **Non-Speculative Investment**

These are **not** speculative shares. You’re not buying into a rising stock price. The value of your shares generally remains stable and is returned at face value if withdrawn.

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<summary>💼 Tax Considerations</summary>

#### **Tax Relief Opportunities**

Some co-ops may be eligible for schemes like the **Seed Enterprise Investment Scheme (SEIS)** or **Enterprise Investment Scheme (EIS)**. These offer tax reliefs to investors -but only if specific eligibility criteria are met.

{% hint style="warning" %}
*Tip: Seek pre-approval from HMRC before advertising SEIS or EIS eligibility in your offer.*
{% endhint %}

#### **Tax on Returns**

If you earn interest or a dividend from your shares, it may be taxable. The co-op should be clear about your responsibilities here.

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<summary>⚖️ Ethical and Legal Boundaries</summary>

#### **Ethical Investment Restrictions**

Many co-ops choose to avoid investing in industries or sectors that don’t align with their values (e.g. arms, fossil fuels, fast fashion). This is often written into their governing rules.

#### **Legal Structure Matters**

Whether you're set up as a **co-operative society** or a **community benefit society (BenCom)** affects how investments are managed, what kinds of returns can be offered, and how your surplus is used.

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***

{% hint style="warning" %}
If in doubt, it's always worth seeking legal or financial advice before issuing or investing in community shares - especially when navigating regulations and investor protections.

For more on this, see [Community Shares Unit](https://communityshares.org.uk) for helpful guidance.
{% endhint %}


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