Is your REI membership a security?
I’ve been telling people that as long as a co-op’s members are all in the state where the co-op is located, does most of its business, and is incorporated, there is no need to worry about federal securities law which does not contain an exemption for non-agricultural co-ops. If you offer memberships in more than one state, I say, you would have to register the offering with the Securities and Exchange Commission.
After I say that, the inevitable response is always “then how does REI do it?” REI is a cooperative and sells memberships all over the country.
Great question! I called REI’s corporate lawyer to ask why REI does not consider its memberships to be securities.
He said REI’s memberships are very far from the definition of a security because people don’t join REI to get financial returns. While REI members do get patronage refunds each year, these are more like a discount on what they buy than a financial return – kind of like the discounts that people pay to get when they join Costco.
REI is so confident in this opinion that it has never requested a no action letter from the SEC.
It also helps that REI memberships are non-transferable and cannot appreciate in value. It doesn’t hurt that the price of a membership is so low.
