Shares

Why do you need to know?

Credit unions are Industrial and Provident Societies that accept deposits from members. These deposits are known as shares.

What are the main points?

Credit unions can accept two kinds of shares

• Non deferred shares
• Deferred shares

There are rules and limitations around the acceptance of credit union shares that must be adhered to.

Non-deferred shares

These are the deposits/savings that have been traditionally accepted by credit unions from their members.

• The nominal value of a non-deferred share is £1
• Both individual members and corporate members can hold non-deferred shares.
• The credit union can impose a minimum shareholding rule though this cannot exceed £5
• Non-deferred shares are not transferable and no share certificate is issued
• Non-deferred shares are withdrawable subject to rules regarding offset of loan liability and the right of the credit union to impose a term notice to withdraw.
• The maximum savings a member can have is £15,000 or 1.5% of total shareholdings whichever is the greater. This is a maximum per member no matter how many accounts they hold.

For example:

In a credit union with a total shareholding of £750,000 the maximum savings is £15,000.
In a credit union with a total shareholding of £1m the maximum savings is £15,000.
In a credit union with a total shareholding of £5m the maximum savings is £75,000.

For junior accounts the limits are the same.

If shares are held in a joint account the limit per member still applies.

If a member has an individual account plus a joint account then the shares in the individual account would be added to half of the shares in the joint account to calculate shareholding.

• Non-deferred shares are protected by the Financial Services Compensation Scheme.
• Non-deferred shares can be either interest bearing or dividend bearing but any one share cannot be both. The credit union must inform the member when they open an account whether the shares are dividend bearing or interest bearing.

Deferred shares

Deferred shares are shares that could be raised in large amounts to contribute to the reserves of the credit union. These can also be issued in small amounts, e.g. annual member fees or membership entry fees.

• The nominal value of a non-deferred share is £1
• Both individual members and corporate members can hold deferred shares
• Members can hold both non-deferred shares and deferred shares
• Deferred shares carry the right to vote but members holding both deferred shares as well as non-deferred shares carry only one vote. The principle of one member one vote still applies.
• There is no maximum limit to the amount of deferred shares a member may hold.
• Holders of deferred shares have very limited access to the funds and rank behind all other creditors including other shareholders. This means that they contribute to the reserves of the credit union.
• The credit union must transfer deferred shares to a deferred share reserve.
• Deferred shares are not protected by the Financial Services Compensation Scheme
• Deferred shares are transferable and a share certificate must be issued. They can be transferred to another member of the credit union.
• Deferred shares are not withdrawable and are repayable only with the consent of the regulator or, if the credit union is wound up or dissolved, when all other creditors have been paid.
• A member cannot take a loan on the strength of deferred shares.