Associative names: what conditions and what stages?

Names of associations, what is it?

Association Titles is a solution for funding associations through investments in quasi-capital. These are subordinated bonds with no fixed maturity, i.e. medium-term or long-term debt that is the last to be repaid in the event of bankruptcy or liquidation. Thus, when an association issues a security, it undertakes to repay the money provided by the investors, plus interest.

Associative names created in 1985 remained little known and little used for a long time. The reason: the complexity of their implementation in terms of financial engineering and administrative procedures, as well as their low profitability for investors, taking into account the risk taken.

In 2014, the law on the social and solidarity economy changed the terms and rates of reimbursement for securities. She makes them more attractive to investors and less difficult to set up for associations. However, if we note the high prominence of associative names in the world of finance, There are still few issuing associations and this tool appears to be designed to raise funds in excess of €500,000.. Indeed, an association issuing associate securities must make sure that its development plan is strong enough to be able to repay obligations in the medium term. The result of this is the preparation of documents (business plan, information message, etc.) that allow investors to have a clear picture of the project throughout the entire period of their investment, i.e. at least 7 years.

Thereby, if associated titles can raise significant amounts, this financing solution is not suitable for all economic models. because he demands the release of surpluses to replace them. So the association must have Reliable and stable business model with some human resources in support functions.

How do associative titles work?

For the issuance of associated securities, the association must exist for more than 2 years as well as the decision, as well as the conditions for issuing securities, must be approved by the general meeting under most of the conditions necessary to change the bylaws. Association asks registration in the commercial register. He then has to convince investors that his development project is sound and therefore profitable in the long run.

Investors who subscribe to associative securities are mostly solidarity funds, but they can also be institutional partners or even banks through their compliance with the issuance agreement.

In turn, the law specifies Investor compensation with an interest rate limited by the average yield of bonds of private companies for 3 months prior to issue (TMMO) + 5.5%. Then this maximum speed regulated by Executive Order and today is TMMO +4.5%..

The law provides that reimbursement can occur from the seventh year, either at the initiative of the issuing association, or when the surplus created by the association exceeds the amount of the original issue.

Schematic representation of the process of issuing associative securities

Toward a new evolution of associative names?

On September 28, 2021, Olivia Gregoire, Secretary of State for Social Solidarity and a Responsible Economy, presented her new action plan in favor of investing in associations. Mainly based on development of associative namesthis new plan aims to facilitate the use of equity investment methods for capital consolidation and diversification of association funding sources after two difficult years related to Covid-19.

Thus, the government has proposed three areas of action to strengthen and facilitate the use of association names:

  • Democratize French financing of associations : in accordance with the Pacte law of 2019, the French will be able, from March 2022, to direct all or part of their life insurance to associative titles;
  • Simplify the use of association names : provision of turnkey tools (standard financial contracts, best practices) to help set up a project to issue associated securities;
  • Strengthen the attractiveness of associative headings : raising the yield ceiling on associative securities, which will attract more financiers, in particular impact funds.

These developments, in particular the government’s announcement of an increase in the yield ceiling on associative securities, are still the subject of discussion within the MFB’s corporate finance community and require confirmation. Indeed, this increase may have implications for the number of references to association titles.

Know more

>>> Discover the joint interview of the sailing association Les Glénans, ECOFI and Crédit Coopératif about the association titles Avise and Crédit Coopératif, 2021

>>> At the government level for investment in associations, Avise, 2021

>>> Names of associations: a solution to strengthen the fairness of associations, France Active, 2018

>>> Associated securities: increasing the capital of associations, France Active, 2019

>>> Law on bonds issued by associations, Legifrance

Leave a Comment