Class-A Share Dividend Process

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This is an interpretative work.

The information on this page is interpreted from EcoReality's official rules, as filed with our incorporation as a British Columbia Cooperative Association, or from agreements we have formally made by consensus among ourselves, as recorded in meeting minutes.

In case of a conflict, the official rules and/or meeting minutes take precedence.

Authors who provide interpretive works should include {{disclaimer}} at the top, and strive to include links to the appropriate rule or meeting minutes.

Jan's comments in green.
Shannon's comments in purple.
Mark's comments in blue.

Definition of "Dividend Reinvestment"
A dividend reinvestment plan (sometimes called DRIP) is an equity investment option offered directly from the underlying organization. The funder does not receive quarterly dividends directly as cash; instead, the funder's dividends are directly reinvested in the underlying shares. It should be noted that the funder still must pay tax annually on his or her dividend income, whether it is received or reinvested.*

EcoReality does not have a "dividend reinvestment plan," as there is no option to receive dividends in anything except stock, and the stock is not publicly tradable, and is therefore illiquid. Rather, we have "stock dividends" or "fractional share splits." EcoReality is closely-held, and its funders are deemed "sophisticated investors" according to BC Securities. As retained earnings, stock dividends should not be subject to taxation until redeemed. (See Stock Dividends - An Explanation and Example.) —Janemail 07:27, 2 May 2009 (UTC)

As Practiced By EcoReality
Annually, as an agenda item during the Coop AGM (Annual General Meeting), members will be presented with factors used to determine viability of announcing a dividend on Class-A shares owned by the membership. If an Agreement is reached to incur a dividend, the dividend will be paid in commensurate # of Class-A shares, resulting in an automatic reinvestment in the Coop.

This is incorrect. According to the co-op rules, Class A shares "may bear stock dividends or stock split at a rate that shall be set by the directors from time to time..." Directors may, in fact, declare stock dividends without the consent of the general membership, and the AGM is merely a convenient time to do such a thing. As stated above, there is no "automatic reinvestment in the co-op" when there is a stock dividend, rather, it represents retained earnings, which must be carefully ascertained to reflect reality to the greatest possible extent. —Janemail 07:27, 2 May 2009 (UTC)
My understanding of this topic is to call it: the nature of the stock dividend itself and how EcoReality has agreed to ascertain and allocate any such dividends in our organization. I'd like to summarize what I read here above for further clarification. In reply to Mark's expression on this topic, Jan is describing that EcoReality AGM is not necessarily the only time that a dividend may be declared by EcoReality, yet the AGM may be a convenient time as it is a fiscal year in review period for our group, and likely a time most or all members are/will be present at a face to face meeting. I also understand that Jan quotes the Rules to show that directors may declare a dividend without consulting with membership. I seek clarification on this point since EcoReality has an ownership and governance structure that includes all members of the Co-Op as directors, so I don't see how the term general membership really applies here and I think reference to this in the Rules is a bit misleading for the purpose of this discussion. The words "reinvestment in the co-op" seem to be a facet of the definition of retained earnings in that they are not cashed out, but they are funds required for reinvestment in the corporation as described by retained earnings. Can Jan and Mark and others please look at this and clarify my summary of the conversation thus far on this topic of the nature of the stock dividend itself and how EcoReality has agreed to ascertain and allocate any such dividends in our organization. Shan 17:10, 2 May 2009 (UTC)
Thanks for the cogent summary, Shannon. I think it's pretty much spot-on. One clarification about "directors:" the rules are bit contradictory, but I agree that they are clear that all members are supposed to be directors. And yet, we have members who are not yet fulfilling a stewardship (and so by definition, they are not directors), and in the latest AGM, we specifically elected the following directors: Apprenticeship Steward, Child Care Steward, Communication Steward, Ecology Steward, Farm Steward, Finance Steward, Group Process Steward, Guest Speaker Steward, Land Use Planning Steward, Program Steward, and Work Party Steward.
The Cooperative Association Act gives directors a great deal of power, and we should probably clear up the contradictions in our rules and in our practices. For example, perhaps provisional members should specifically not be directors. —Janemail 17:46, 2 May 2009 (UTC)

Existing wiki info

  • Limited info on the concept of share dividends at Coop Rules - Part 4 - Share Structure.
    I disagree that this is "limited info," although it does seem to be misunderstood info. You need to examine Coop rules#Patronage returns, as well. —Janemail 07:27, 2 May 2009 (UTC)
  • Previous AGM agreements regarding dividends:
    • 5 May 2007
    • Can anyone find other AGM minutes reflecting prior dividends???
      No one will "find other AGM minutes reflecting prior dividends," as this was the only time we ever declared a dividend. This was based the opinion of our realtor that the Sharp Road property value had increased by at least the rate of inflation. —Janemail 07:27, 2 May 2009 (UTC)

Benefits

  • When used responsibly to demonstrate increase in share value (i.e. total # of shares), facilitates investment in the project by member funders, "Angel" funders, and others due to the sensibility that money will have the capacity to gain value
    I disagree very strongly with this. There is never any intent for funding in EcoReality shares to "gain value." In fact, we say in several places that so-called "return on funding" will be capped by the rate of inflation. This is one of the first things I tell any potential funder. One of our main goals is to remove speculative value from capital, specifically, land. The sole reason for a share dividend is so that share value keep up with the government's ability to dilute "share value" in the Canadian Dollar by printing more money, should such an increase be justified by EcoReality's underlying assets. The "value" that EcoReality funders gain is the ability to feed and house themselves, not the ability to make a financial return. If one desires an investment that will "gain value," they should not fund EcoReality! —Janemail 07:27, 2 May 2009 (UTC)

Challenges

  • Largest asset is equity in land/structures and so real estate volatility a strong, driving factor in any change to the dividend amount
    Real estate volatility is primarily an issue should EcoReality face liquidation. —Janemail 07:27, 2 May 2009 (UTC)
  • No existing model by which to make objective evaluation of how large/small a dividend should be
    This is incorrect. It is very clearly stated that the stock dividend is not to exceed the rate of inflation and that, within that constraint, the equity should equal the book value as closely as possible. We hit it within 0.3% this year, which is not bad, considering that publicly traded companies are often valued at 2,000% of asset value or more! —Janemail 07:27, 2 May 2009 (UTC)
  • No existing model by which to determine if there should be a dividend or a negative stock split
    Untrue. EcoReality share value should, as closely as possible, reflect asset value, limited by the rate of inflation. —Janemail 07:27, 2 May 2009 (UTC)

In summary, there are well-defined models for declaring dividends, but we need to work on making them better understood, which from this conversation, I'd say is the biggest "challenge!" —Janemail 07:27, 2 May 2009 (UTC)

Outstanding Questions

Q: For clarification, ARE WE REQUIRED to pay taxes on a dividend reinvestment of shares
A: If new shares acquired from dividend reinvestment results in increased assets, then it's reasonable to assume that personal income taxes are due for each Member who receives new shares (by Mark)

Again, there is no "dividend reinvestment." You should consult a tax attorney before making such assertions. —Janemail 07:27, 2 May 2009 (UTC)
A bigger issue is that if we declare a stock dividend, the rate at which residents who are not vested goes up by that amount! I don't think we want to do that unnecessarily!

* Paraphrased from Wikipedia.org page on Dividend Reinvestment Plan

Reminder: EcoReality does not have a "dividend reinvestment plan". From that reference, I see that a DRIP is "an equity investment option." EcoReality does not offer an option of taking cash dividends! Please read these things more carefully before making such assumptions! —Janemail 07:27, 2 May 2009 (UTC)
To reiterate something I was trying to be very clear about, the focus of the language change I suggested is precisely because EcoReality does not offer an option for dividends paid out as cash. Specifically regarding that single concept, the wording used in these previous months for this topic hasn't had (for me) the effect of reinforcing that idea. When borrowing from financial-industry lingo, "divident reinvestment" seemed to be closest in accuracy. I can go along with selecting a different term, but IMHO a search for that term should continue.
Mark, I would be open to any language change you might suggest, but please be aware that the specific language "stock dividend" is a legally precise way of describing exactly what we do, and in fact, we are constrained to stock dividends in our constitution.
I agree that language is powerful, and partially for that reason, we choose to call "stewards" what the law calls "directors."
I would personally love to have a better term for "stock dividend," such as "We reject the broken financial system that is now collapsing all around us, but recognize that collectively and as individuals, we must play in that realm — to as limited a degree as our personal needs allow. Rather, we strive to ensure that each member's funding will purchase a similar amount of the earth's precious resources, such as clean air, living water, nutritious food, functional and attractive shelter, modest amounts of energy and (saving the best for last) wonderful friends, over time.
If that's something you could get behind, by all means, come up with a name for it!
I adore what you've written, buddy! Can we just use that??? :)

-Submitted by Mark S

I apologize that the stock dividend mechanism seems unclear to you. Rescinding the 0.96% stock dividend is merely correcting an error, and I apologize for making that error in recommending to the other directors that we declare a stock dividend. We cannot, according to our legally binding bylaws, declare a stock dividend unless it comes from a surplus. Our property tax statement clearly indicates we do not have a surplus. I am sorry you were not able to attend the meeting where we discussed this at length, and I hope the information I've added here is helpful in your understanding of the entire stock dividend mechanism in general, and this year's erroneous stock dividend, in particular. Let's talk if you have further questions! —Janemail 07:27, 2 May 2009 (UTC)

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