There is an opportunity to increase the retention and circulation of British Columbians’ hard-earned money in our own province that will lead to meaningful job creation, increased provincial tax revenues, increased local wealth and economic resiliency. Co-operatives are democratic corporations with considerable investor protections and director accountability mechanisms built into the legislation under which they are incorporated.  Because each member has only one vote no matter how many shares they hold, co-ops are unattractive vehicles for anyone seeking a controlling interest in a company.   

Background

BC co-ops, registered under the BC Co-operative Act,[1] have a special exemption from the prospectus and registration requirements under the BC Securities Act[2]  regulations and rules.  That exemption has not been changed since its introduction in 2001. The British Columbia Co-operative Association[3], Community Impact Investment Coalition of BC[4] and the Canadian Community Economic Development Network[5]  recommends that it be updated to meet current circumstances.  Minor changes would make it a more useful exemption for BC co-operatives whilst providing sufficient protection for investors.  Loosening the red tape would permit investors to make the choice to invest their own funds in their communities. These organizations also believe that a new CEDIF-like program[6]  is introduced to enable local investment through the Investment Co-op model. This would allow Investment Co-ops to issue an investor tax credit using the existing VCC program or a newly established CEDIF-like program, which keep wealth circulating in the British Columbia economy rather than being invested elsewhere.

Under the current exemption BCI 45-530[7] , B.C. co-ops can issue any number of membership shares as long as no individual invests in excess of $5,000.  For investment shares, there are two additional requirements: the co-op must have no more than 150 members in BC (excluding full-time employees), and the purchaser must have been a member of the co-op for at least 12 months (or since its inception, if the co-op has existed for less than 12 months).  If a co-op had exactly 150 members, each of whom invested the maximum of $5,000, it could raise $750,000 from the combination of membership share and investment share issuances.  In practice, that is unlikely.

The lifetime limit of $5,000 per investor was intended to limit risk.  The number has not been changed since 2001, even though the consumer price index has since risen by over 30% and the cost of British Columbia’s real estate has multiplied.  The administrative costs associated with small investment amounts are inefficient and frustrating.  A higher limit, or an annual limit, would not significantly increase investor risk.

The time requirement in BCI 45-530 is also a deterrent. Co-operatives seeking to raise capital from their members to undertake projects cannot be expected to wait more than a year, and investors do not want to wait a year before investing due to this technicality.  There is no evidence that this waiting period advances investor protection; in fact, it may be counterproductive because it makes it harder for co-operatives to respond nimbly to business opportunities.

The Chamber acknowledges the current analysis underway by the BC Securities Commission to review this exemption and work with industry partners such as the BC Co-operative Association and the BC Community Impact Investment Coalition. 

The Chamber Recommends

That the Provincial Government, working with the BC Securities Commission, make changes to the existing co-op securities regulations by amending BCI 45-530 to

  • Increase the $5,000 cap per investor by raising to a higher maximum, or allow a $5,000 maximum contribution per calendar year;
  • Remove the 12-month membership requirement for purchasing investment shares;
  • Significantly increase the maximum number of investors allowed in a community investment co-op; and
  • Establish a total investment portfolio level where BC co-ops would be required to use the offering memorandum exemption under the BC Securities Act.

[1] http://www.bclaws.ca/civix/document/id/complete/statreg/99028_01 

[2] http://www.bcsc.bc.ca/Securities_Law/Act_Regulations_and_Rules/

[3] https://bcca.coop/about-us/

[4] http://www.bcimpactinvestment.com/

[5] https://ccednet-rcdec.ca/en/page/bc-community-impact-investment-coalition

[6] https://nssc.novascotia.ca/corporate-finance/community-economic-development-Investment-funds

[7] https://www.bcsc.bc.ca/Securities_Law/Policies/Policy4/45-530_Exemptions_for_securities_issued_by_a_cooperative_association__BCI_/