How Do They Work?
Community Share Offers are a great way to build strong engagement with your members and supporters whilst raising funds for your project. In recent years, there has been a strong push to encourage the development of best practice in this area, led by the Community Shares Unit, with government funding from the Department for Communities. Community Share Offers have been used to develop successful projects across a number of sectors including:
Community shops, pubs and post offices
Football and sports clubs
Heritage assets (piers, museums, vintage railways)
Community energy projects
Local food production and sustainable farming
We believe Community Share Offers have great wider potential to be used in developing new models for public service delivery – particularly in sectors where co-production and partnership with service users is important to drive efficiencies, integration and a person-centred approach. This would apply to sectors like health and social care, supported living, education, libraries and leisure services.
A buoyant market
Since 2009, over 286 community share offers have been successfully completed or are underway. According to the Community Shares Unit’s Inside the Market report (June 2015), more than £80m of share capital has been raised from over 60,000 investors since 2009. This now represents a 10% share of the total social investment market and is the second largest form of crowd-funding in the UK. There is growing appetite from philanthropists, foundations, charities, and crucially members of the public, to invest in these enterprises. The new Social Investment Tax Relief allows individual investors to offset 30% of the cost of the investment against their tax bill, if relevant criteria are satisfied. The involvement of these community-based members and investors creates strong engagement between the new enterprise and those it serves. They can also enhance the governance of the organisation by holding the board the board to account.
What is a Community Share Offer?
The term ‘community shares’ usually refers to ‘withdrawable shares’ in community benefit societies set up under the new Cooperative and Community Benefit Societies Act 2014. There are three main reasons for the use of this format. Firstly, cooperatives and community benefit societies can issue ‘withdrawable shares’ – a type of share capital unique to this legal format, which allows the enterprise to pay a fixed or capped rate of interest (usually at the discretion of the board, as finances allow), but at the same time allows the investor to withdraw their capital, but normally not to sell or transfer their shares. Secondly, share offers made by a community benefit society or cooperative are an exempt category of security for the purposes of the Financial Promotion Order 2005, which means there is no obligation to involve an expensive FCA authorised adviser in structuring or marketing the investment. Thirdly, a community benefit society (but not a cooperative) can qualify as a charity if it has exclusively charitable objectives, with all the attendant tax reliefs and status and still issue shares to the public.
It is also possible for community interest companies and limited companies to issue shares to a closed class of supporters who share a common interest – although there is some legal uncertainty about this route at present and additional complications.
Community Benefit Societies
The Community Benefit Society is a limited liability entity with a constitution based on a set of rules and a two-tier governance structure comprising the board and general membership. Unlike shares in a limited company, these shares are usually non-transferable and carry a right to capped or fixed interest only. There is no right to participate in profits or a slice of the underlying assets – so no scope for capital gain, so the enterprise is preserved for the common wealth. The decision to pay interest on the shares is usually at the discretion of the board and will only occur if there are sufficient trading surpluses to justify this, without compromising the organisation’s core mission. If a shareholder wishes to cash in, the society simply returns the original cash stake. Controls exist to stop all shareholders cashing in at the same time. Most societies are also subject to an asset lock, which prevents the society being sold and the proceeds of the sale being distributed amongst shareholders.