Consumers
Factsheet
Depositors and Shareholders in a Building Society
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Contact: Simon Rex Date: 3 Oct 2008 |
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The Difference Between a Depositor and a Shareholder
People and institutions investing in building societies can be divided into two categories - the depositor and the investing member (or shareholder). Depositors are not members of the society and have no say in its running.
Shareholders, as members, have the right to receive information on the activity of the society, including the summary financial statement, and notification of the annual general meeting and any special general meeting. Shareholders can vote in elections for the board of directors, attend annual general and other meetings and, providing the correct procedures are followed, propose motions or stand for election themselves.
Where there are joint holders of a share account, only the first-named account holder is entitled to all of the members' rights described above.
Depositors are not members of the society and have few of the rights of shareholders. Depositors for example, need not be notified of the annual general meeting as they are not entitled to attend that meeting or vote on matters under consideration. Also depositors are not automatically sent a copy of the summary financial statement, although generally copies of this document are available from societies on request.
In theoretical terms depositors enjoy a greater level of security than shareholders, although in practical terms this distinction is largely irrelevant. In the extremely unlikely event of a building society becoming insolvent, depositors will receive all of their money back before any distribution is made to shareholders. If there is a shortfall of funds shareholders will bear this shortfall rather than depositors.
A recent Act of Parliament - the Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 - could change this arrangement. That Act allows for secondary legislation to be passed by Parliament that would result in funds held by shareholders and depositors ranking equally in the unlikely event of insolvency. More information can be found by going to the page on this site covering Building Society Legislation.
Irrespective of the points made above, the Financial Services Compensation Scheme applies to all building society shareholders. If the Scheme was ever required in the case of a building society savers would be entitled to 100% compensation on the first £50,000 invested (from 7 October 2008). More information on the Scheme is available here.
Deposit Accounts and the Building Societies Act 1997
The Building Societies Act 1997 imposes restrictions on the categories of deposit accounts which an individual may hold with a building society.
Apart from a number of exceptions, individual investors may only have share accounts with societies. The exceptions - where customers may still open deposit accounts - include current accounts; client or trustee accounts; qualifying time deposits; deposits at overseas branches; and where the society has announced publicly that it intends to transfer its business to a company.
