The is part of a series of blog posts reviewing some of the key legal implications associated with a Saskatchewan credit union continuing federally. This post focuses on the differences in capital structure between federal and Saskatchewan credit unions.
While the capital structure requirements of a Saskatchewan credit union and federal credit union are similar, there are some differences associated with a federal credit union which are described below.
A federal credit union may only have one class of membership shares in which the rights of the holders are equal in all respects, including the right to receive dividends and remaining property of the credit union on dissolution. In addition:
- To be a member of a federal credit union, individuals must acquire and hold the minimum number of shares required under the credit union’s bylaws.
- The right to vote (one vote per member) attaches to membership and not the membership shares.
- The transfer of a membership share is subject to board approval.
The requirements for a Saskatchewan credit union as they relate to membership shares are similar.
There are however some differences in terms of membership capital between a federal credit union and a Saskatchewan credit union:
- Dividends in a federal credit union are limited to a maximum percentage which is set out in the constating documents. There is no comparable restriction applicable to Saskatchewan credit unions.
- Membership shares of a federal credit union must be issued with no par value and the bylaws must specify any limit on the number of membership shares and set out a formula for determining the value of the membership shares. On the other hand, a Saskatchewan credit union’s membership shares may only be issued at par value.
Share Capital (Investment Shares)
SHARE CAPITAL – ISSUANCE
A Saskatchewan credit union can issue investment shares, but only with the approval of CUDGC and if authorized under the articles. If authorized under its articles, a credit union’s articles must also specify the terms on which investment shares may be issued. Notably, no investment shares may be issued in a Saskatchewan credit union until the members have authorized the principle of the issuance of investment shares.
A federal credit union can issue “shares” (which by definition excludes “membership shares”) if its bylaws specify the terms on which such shares may be issued. A federal credit union does not require a general regulatory approval to issue shares, but regulatory steps may be required in some cases (for example, please see below regarding series of shares).
SHARE CAPITAL – OWNERSHIP
A Saskatchewan credit union is subject to specific limitations with respect to the ownership of investment shares. In particular, subject to limited exceptions, the total number of investment shares that a person and his associates may beneficially own must not exceed 10% of the total number of any class of investment shares of a credit union.
A federal credit union is generally subject to similar ownership restrictions. However, this ownership restriction is automatically increased in some cases and can be removed with the approval of the Minister of Finance (subject to certain exceptions).
SHARE CAPITAL – RIGHTS
The investment shares in a Saskatchewan credit union are not entitled to vote, except in prescribed circumstances. Specifically, the articles of a Saskatchewan credit union may provide that: (a) an investment share confers the right to vote on the election of directors by reason of an event that has occurred and is continuing or by reason of a condition that has been fulfilled, or (b) the shareholders of any class of investment shares may elect a fixed number or a percentage of directors. The investment shareholders of a Saskatchewan credit union (collectively) may not elect more than 20% of the directors of the credit union.
The “shares” of a federal credit union can vote in similar circumstances, provided the appropriate provisions are included in its bylaws. Similar to a Saskatchewan credit union, the shareholders of a federal credit union (collectively) may not elect more than 20% of the directors of the credit union.
SHARE CAPITAL – SERIES SHARES
The articles of a Saskatchewan credit union may authorize the investment shares of the credit union to be issued in one or more series and may fix the number of investment shares in, and determine the designation, preferences, rights, privileges, restrictions, limitations, prohibitions and conditions attaching to the shares of each series, or authorize the board of the credit union to do any of the above. If the board exercises this authority, the board must, before the issue of the investment shares, send to CUDGC articles of amendment in the prescribed form.
The requirements for a federal credit union as they relate to series shares are similar. The by-laws of a federal credit union may address the above matters in relation to the issuance of shares in series (subject to shareholder approval). As with a Saskatchewan credit union, if the directors of a federal credit union exercise their authority in relation to investment shares, the directors shall, before the issue of shares of the series, provide the required notice to the Superintendent of Financial Institutions (OSFI).
SHARE CAPITAL – CONVERSION RIGHTS
A Saskatchewan credit union may issue certificates, warrants or other evidence of conversion privileges, options or rights to acquire shares or securities of the credit union, and is required to set out the conditions thereof in the relevant documents or securities.
A federal credit union has similar rights.
SHARE CAPITAL – REDEMPTION OF SHARES
A Saskatchewan credit union may, with the approval of CUDGC, purchase for the purpose of cancellation, any membership or investment shares issued by it, or redeem any redeemable investment share issued by it at a price not exceeding the redemption price calculated according to the formula outlined in its articles or according to the conditions attached to the shares.
A federal credit union has similar rights which may be exercised with the consent of the Superintendent of Financial Institutions (OSFI).
Next week’s blog post will focus on certain differences in board governance between federal and Saskatchewan credit unions.