Company law stopped a company handing its members their capital back; co-operative law built the hand-back in and gave the board the power to suspend it. On the two ways out of an organization, and a caper that offers both.
Company law stopped a company handing its members their capital back; co-operative law built the hand-back in and gave the board the power to suspend it. On the two ways out of an organization, and a caper that offers both.
A member who wants to leave an organization they have put money into has two ways to get it back. They can sell their share to someone else, or they can hand it back to the organization and be paid out of what it holds. For most of the last two centuries English law gave each kind of organization one of those ways and closed the other. Companies got the sale. Co-operatives got the hand-back, along with a board that could shut it. Which way out an organization offered decided who carried the cost of a member leaving, and who could stop them.
Because the House of Lords ruled in 1887 that it was unlawful. In Trevor v Whitworth a company had bought back almost a quarter of its own shares, as its articles allowed. It then went into liquidation, and a former shareholder claimed the part of the price still owed to him. The Lords held the purchase beyond the company's powers, and the claim failed. The rule that grew from the case, called capital maintenance, treats share capital as a fund kept for creditors, who lend partly on the strength of it. Money paid in for shares stays in.
A shareholder who wanted out therefore needed a buyer. The share was transferable, so it could be sold to anyone willing to pay, and the company took no part in the exchange. That kept the company's capital intact and put the cost of leaving on the market: a leaving shareholder got whatever the next person would pay that day, and on a bad day nobody would pay anything. The UK relaxed the rule in 1980, and the Companies Act 2006 now sets out how a company may buy back its own shares. For close to a century before that, leaving a company meant finding a buyer.
By withdrawing their shares, which the society pays for out of its own funds. The Rochdale Pioneers opened their shop at 31 Toad Lane in December 1844, and the principles drawn from their rules, adopted by the International Co-operative Alliance in 1937, include one person, one vote and limited interest on capital. A co-operative share is a stake in membership rather than an asset to trade. The Financial Conduct Authority, which registers co-operative and community benefit societies in the UK, notes that societies generally issue withdrawable shares, and that a transfer needs the board's consent. The sector's Community Shares Handbook defines community shares, the form community businesses use to raise money from their members, as withdrawable and non-transferable.
Withdrawal puts the cost of leaving on the members who stay. The society pays a leaving member from cash it holds, so it has to keep cash for the purpose, and a run of withdrawals can take the money it needs to trade. The handbook's answer is the board's power to suspend. A society can require notice of between a week and a year; most new societies suspend withdrawals for up to five years while they build reserves; and a rule letting the board suspend withdrawals is required if the society is to show its share capital as an asset on its balance sheet. The FCA notes that most society rules give the board power to suspend all share withdrawals. A co-operative member can leave when the society can afford it and the board agrees.
Each arrangement protects something real: the company's creditors, the society's cash. Each does it by closing one way out.
Both ways, and neither needs anyone's permission. A caper is an organization on Radix, which anyone can launch, with its own token, treasury and market created together in one transaction. Its tokens trade against a bonding curve, a market built into the caper that quotes a price at any time, so a holder who wants to sell does not wait for a buyer to turn up. That is the company's way out, with a counterparty that is always there, though the price it pays moves with demand.
The second way is the exit right. A member who has voted in the caper at least once can hand back their tokens at any time and leave with their fair share of the treasury, in one transaction. There is no proposal, no board to ask, no notice period, and nothing another member can do to delay it; Leaving a caper sets out the details. That is the co-operative's way out, without the power to suspend it.
A co-operative suspends withdrawals to protect the society from a run. A caper handles the same risk in its design rather than through a board. Each exit pays a share of what the treasury holds at that moment, so the treasury cannot be over-drawn and nothing is left stranded, and nothing in the exit rewards being first out of the door. A member who sees others leaving gains nothing by hurrying.
The Rochdale rule of one person, one vote kept capital from buying control of the society. Companies went the other way, with a vote for each share. A caper's vote weight is earned by voting, so a big bag alone can't capture control, and the same earned weight sets a member's share when they leave. A member's say and their claim on the treasury rise and fall together; The Exit Right makes that case at length.
The cost moves too. In a co-operative the members who stay carry a departure, which is why the board can make the leaver wait. In a caper the leaver takes their share, the treasury is smaller afterwards for everyone who stays, and nobody can prevent it, the founder included. A caper cannot hold members who want to go, so what keeps its treasury is what it does with the money: the work it funds and the decisions its members make.
Two limits belong beside this. The treasury opens to a member only with their first vote: a holder who has bought tokens and never voted can sell them to the curve but has no claim on the treasury. And Caper runs today on Radix's test network, so no caper has yet held a treasury of real money or faced a real run.
Community shares are where the comparison is sharpest, because their members already accept withdrawable capital, and a board that can suspend it, as the terms of owning a business together. A society that wanted the hand-back without the suspension, and a market for members who would rather sell, would end up close to a caper. Anyone can launch one on Radix's test network now, and The Open-End Organization covers how the same market keeps a caper's raise open.