What are community shares?
Community shares schemes are a way of raising money to finance a project.
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Community shares – the basics
Community shares schemes are a way of raising money to finance a project. They can be used to save local shops and pubs, finance renewable energy developments, transform community facilities, or fund new sports clubs; the choices are endless.
Rather than traditional forms of investment, in which large stakeholders invest the majority of the money needed, and subsequently rule the roost, community share schemes are more democratically run and give greater control to the whole community of investors.
Anyone can choose to invest and each investor has a say in the scheme’s management, no matter what the size of their investment. Because of this, community shares are a great way of funding projects with a specific community benefit in mind.
By investing in the services and facilities that matter to them, and by having a say in the way they are run, communities gain a sense of ownership and grow stronger as they work together to change their future.
The term ‘community shares’ refers to withdrawable share capital; a form of share capital unique to co-operative and community benefit society legislation. This type of share capital can only be issued by co-operative societies, community benefit societies and charitable community benefit societies.
All enterprises need risk capital to start, to grow and to be sustainable. This capital is usually provided by the shareholding owners of the enterprise. Risk capital allows the enterprise to ride the ups and downs of development when pursuing ambitious, business goals.
One of the main reasons why social enterprises can find it difficult to compete with private enterprises is their lack of access to risk capital in the form of equity investment. Traditional equity investment is often considered as being incompatible with social purpose, because shares are directly linked to ownership and control. The more shares you have the greater your control.
Community shares can overcome this problem by removing the link between the amount someone invests and the amount of control they have in the business. Community Shares use co-operative and community benefit society legislation.
- Shares cannot be transferred between people. Instead, the society allows shareholders to withdraw their shares subject to terms and conditions that protect the society’s financial security.
- The value of shares is fixed and not subject to speculation, although some societies have the power to reduce share values if the society is experiencing financial difficulties.
- Shareholders have only one vote, regardless of the size of their shareholding, so the society is democratic. There is also a limit on personal shareholdings, currently up to £100,000.
- There is also a limit on the interest paid on share capital, based on the principle that interest should be no more than is sufficient to attract investment.
- Finally, the majority of societies are subject to an asset lock, which prevents the society being sold and the proceeds of the sale being distributed amongst shareholders.
What are the benefits of community shares?
- Community shares are an ideal way for communities to invest in enterprises serving a community purpose.
- Investors have the satisfaction of knowing they have helped transform their communities.
- Investors have a democratic say in how their scheme is run. Shareholders have one vote each, regardless of their shareholding.
- Investors have the potential to make a return on their investment.
- Investors could trade volunteer hours on the project for shares.
- Helps build strong independent communities.
- Helps fund projects which might struggle to find traditional forms of investment.