Editing Demutualization (section)

{{Short description|Form of privatization}}
{{Economic systems sidebar |expanded=Transition}}
'''Demutualization''' is the process by which a customer-owned [[mutual organization]] (''mutual'') or [[co-operative]] changes legal form to a [[joint stock company]].<ref>{{cite web |title=demutualization, n. |publisher=[[Oxford English Dictionary]] (subscription) |date=March 2004 |access-date=2008-05-20 |url=http://dictionary.oed.com/cgi/entry/00328152?query_type=word&queryword=demutualize&first=1&max_to_show=10&single=1&sort_type=alpha }}</ref> It is sometimes called '''stocking''' or [[privatization]]. As part of the demutualization process, members of a mutual usually receive a [[windfall gain|"windfall" payout]], in the form of shares in the successor company, a cash payment, or a mixture of both. [[Mutualization]] or mutualisation is the opposite process, wherein a shareholder-owned company is converted into a mutual organization, typically through takeover by an existing mutual organization. Furthermore, re-mutualization depicts the process of aligning or refreshing the interest and objectives of the members of the [[Mutual organization|mutual society]].

The mutual traditionally raises [[Capital (economics)|capital]] from its customer members in order to provide services to them (for example [[building society|building societies]], where members' savings enable the provision of [[Mortgage loan|mortgages]] to members). It redistributes some [[Profit (accounting)|profits]] to its members. By contrast, a joint stock company raises capital from its shareholders and other financial sources in order to provide services to its customers, with profits or assets distributed to equity or debt investors. In a mutual organization, therefore, the legal roles of customer and owner are united in one form ("members"), whereas in the joint stock company the roles are distinct. This allows a broader capital base if the customers cannot or will not provide sufficient financing to the organization. However, a joint stock company must also try to maximize the return for its owners instead of only maximizing the return and customer services to its customers. This can lead to a decline in customer service to the extent that customers', management's and shareholders' interests diverge.<ref name=autogenerated1>{{cite web|title=The Effect of UK Building Society Conversion on Pricing Behaviour (March 2003) |author=Shelagh Heffernan |publisher=Faculty of Finance, CASS Business School, City of London |url=http://www.cass.city.ac.uk/facfin/papers/WP2003/Mutuals-WP.pdf |access-date=2007-10-10 |url-status=dead |archive-url=https://web.archive.org/web/20071129143345/http://www.cass.city.ac.uk/facfin/papers/WP2003/Mutuals-WP.pdf |archive-date=2007-11-29 }}</ref>

A very early example of demutualization were the changes to the structure of the [[Union Insurance Society of Canton]] initiated by its secretary N.J. Ede between 1873 and 1882 leading to its re-registration as a limited company having originated as a mutual assurance society for traders in Canton in 1835.