$ Investment Clubs Regulation In Zambia

 

Investment clubs do not usually need to register, or to register the offer and sale of their own membership interests, with the Securities Exchange Commission (SEC) or Capital Markets Authority (CMA). Note that SEC and CMA is used in this book interchangeable to mean same institution. However, since each investment club is unique, each club should decide if it needs to register and comply with securities laws.

There are four regulatory statutes that might apply to investment clubs:

1.     Securities Statutes

2.     Investment Company Statutes

3.     Investment Advisors Statutes

4.     Micro finance institutions regulation statutes

5.     Company registration statutes

 

€       Regulation Under Securities Statutes

Under the Securities statutes, membership interests in the investment club may be securities. If so, the offer and sale of membership interests could be subject to regulation.

Since the Securities statues require registration of the offer and sale of most securities, the investment club must register if its membership interests are "securities." Generally, a membership interest is a security if it is an "investment contract."

A membership interest is an investment contract if members invest and expect to make a profit from the entrepreneurial and managerial efforts of others.

If every member in an investment club actively participates in deciding which investments to make, membership interests in the club would probably not be considered securities. On the other hand, if the club has any inactive members, it may be considered to be issuing securities.

Sometimes offers and sales of securities do not have to be registered because they are exempt under the law. For example, a non-public offering is exempt.

€       Regulation Under Investment Company Statutes

Under the Investment Company statutes, an investment club may be an investment company, and subject to regulation.

An investment club must register with the capital markets regulators as an investment company under the Investment Company statutes if all of the following three apply:

1.     The club invests in securities,

2.     The club issues membership interests that are securities (see above), and

3.     The club is not able to rely on an exclusion from the definition of "investment company."

A "private investment company" may not need to register with the capital markets regulators. To qualify as a private investment company, an investment club:

¯       Must not make, nor propose to make, a public offering of its securities, and

¯       Must not have more than 100 members.

An announcement that a club is looking for new members might be considered a public offering, but the analysis is made on a case-by-case basis.

An attorney with experience in securities law can help the club determine whether its membership interests are securities, and whether the club is making a public offering of those securities.

 

€       Regulation under Investment Advisers Statutes

If an adviser is compensated for providing advice regarding the club's investments, the adviser may need to register under the Investment Advisers statutes. Also, if        one person chooses investments for the club, that person may have to register as an          investment adviser.

In general, a person who has $25 million or more in assets under management is required to register with the SEC under the Investment Advisers statutes.

A person managing less than $25 million may be required to register under the securities laws of the state or states in which the adviser transacts business.

Further, the Investment Advisers statutes do not require registration for advisers with small numbers of clients.

€       Regulation Under Micro Finance Regulatory Statutes

A further, and final mode of regulation of investment clubs will come into operation if the investment club is registered as a micro finance institution, either as a village bank, cooperative (savings and credit society, or multi-purpose cooperative society), or as a micro finance company.

In all above cases, there are hybrid regulatory streams, with those registered as non-governmental organizations, or nonprofit organizations, regulated first under nonprofit law regulatory scheme, and then, depending on the areas of operations, and capital in use, and nature of business, they can then be also regulated by the central bank of the given country as deposit taking institutions.

On the other hand, those registered as cooperatives are regulated under the cooperative statutes, under ministry of trade, or relevant ministries and pay necessary dues to the national association or national union of cooperatives for education and supervisory functions.

€       Regulation Under Company Law Statutes

Company law (or the law of business associations) is the field of law concerning companies and other business organizations. This law regulates all investment clubs registered as corporations, partnerships, associations, and other associations which usually carry on some form of economic activity, such as hybrid legal entities (business names with a constitution).

The most prominent kind of company, usually referred to as a "corporation", is a "juristic person", i.e. it has separate legal personality, and those who invest money into the business have limited liability for any losses the company makes, governed by corporate law.

The regulation here is in relation to directorships, and tax, and does not necessarily limited whether people can form a company as an investment club or not.

In summary, it is a good idea to seek the advice of a lawyer specialized in finance and investment or to contact the capital markets regulator for the state in question before getting involved with an investment club.

…………..

ZANAICA is promoted and hosted by Twende, an on-demand platform and Zambia’s first superapp, that also offers motorcycles (bodabodas) and tricycles (tuktuks), on lease to own, hire purchase model. Twende promotes investment clubs as an initiative to promote savings and investment culture in Zambia. To get free investment club training, do not hesitate to contact us on facebook at https://wa.me/+254103242604, or https://chat.whatsapp.com/HNosGG0OmdWHvXnFHVSLoh or email us at zanaica@twende.store or visit Twende offices at Manda Hill, Plot 271/C.

……….