Withdrawable share capital

Investing in a society’s withdrawable share capital can have several benefits – you may get to use society facilities or get a dividend on the business you give the society. But don’t invest for larger financial reasons – these aren’t replacements for a bank or building society and you’ll likely earn little interest.

What are withdrawable shares?

Top tip

If you don’t understand a financial product get independent financial advice before you buy.

To understand withdrawable shares, you first need to understand Industrial and Provident Societies (IPS).

Most Industrial and Provident Societies are small, co-operative societies formed for an ethical or community purpose – running a village shop or generating green electricity, for example. Some are much larger, like the well-known co-operative stores.

Most Industrial and Provident Societies issue shares in the form of withdrawable share capital. Buying shares gets you membership in the society, and may give you other benefits as well. And if you need to get your cash out, you can sell your shares back to the IPS at face value.

How they work

  • By buying shares in a society you become a member, and can vote at the group’s annual meetings.
  • You can become a member with just a single £1 share. The maximum you can invest, subject to the rules of the society, is £100,000 (from 6 April 2014).
  • When you want to cash in your shares, the society will repay the money you invested.
  • Some societies pay you a bit of interest on your shares. Others offer only a social return on investment. In other words, you get the opportunity to put some money into a good cause with the possibility of getting it back when you need it.
  • If your shares are in a co-operative society – a group run for the benefit of its members – you’ll get access to society facilities and services, and may get a dividend on the business you give the society.
  • If your shares are in a community benefit society – a group that aims to benefit the wider community, not just its own members – you may not get any special privileges, and won’t get a dividend.

Risk and return

  • You get access to society facilities and can support activities that benefit your community
  • You may get a dividend on the money you spend with the society
  • You’ll earn little or no interest on your money

Access to your money

Most societies will repay your shares on demand, but others need prior notice – sometimes several months in advance of your withdrawal.

Charges

There may be charges such as annual membership fees or an administration charge, if you make a withdrawal – check with the scheme to ensure you fully understand the charges that may apply.

Safe and secure?

The money you put into withdrawable share capital is not protected by the Financial Services Compensation Scheme. If the society collapses, you could lose all the money you’ve invested.

How to get withdrawable share capital

Withdrawable shares aren’t traded on the stock market – you buy them directly from the society that’s offering them.

Tax

Societies don’t deduct tax before paying out interest. So if you get interest payments, you must declare the income and pay any tax owed.

If things go wrong

While Industrial and Provident Societies are registered by the Financial Conduct Authority (FCA), withdrawable share capital itself is not regulated. So if there’s a problem, you can’t make complaints through the Financial Ombudsman Service or get your money back from the Financial Services Compensation Scheme - you’ll need to sort the problem directly with the society

Advertisements for withdrawable share capital are also outside the FCA’s scope, so they may not provide all the risk information you need to make an informed choice.