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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💷 Capital Limits

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.

👥 Membership Requirements

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.

🛡 Regulatory Compliance

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)

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.

🎯 Purpose and Use of Funds

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.

🪙 Types of Shares

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.

💼 Tax Considerations

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.

Tip: Seek pre-approval from HMRC before advertising SEIS or EIS eligibility in your offer.

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.

⚖️ Ethical and Legal Boundaries

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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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 for helpful guidance.