An introduction to Community Shares

Community Shares are a type of share capital, known as withdrawable shares, unique to Co-operatives and Community Benefit Societies.

Most people are familiar with share capital in Companies known as transferable shares which can be transferred or sold by shareholders to a third party and a mutually agreed price. Investors buy the shares in the hope of either a dividend or the possibility that shares will appreciate in value. Votes are normally attributed to the number of shares held and there are normally no limits to the number of shares held. As Companies get bigger they enter onto Public Markets where shares can be easily transferred and sold.
Withdrawable shares are totally different. Shares cannot be transferred between people, and the value of the share is fixed. Subject to approval from the Society Board an individual can withdraw their shares, which in effect are bought back by the Society. Interest can be paid but because of the nature of the organisation it can only be a small amount as the vast majority needs to be reinvested to meet the objects. Still an exit route exists which is often not the case in small/medium Companies (like football Clubs) where there is no market for shares. In reality this exit route means that the Club need to either recruit new shareholders, encourage existing shareholders to invest more, pay interest into shareholder accounts and most obviously build up reserves by retaining some profits.

Community Shares are a popular way to raise finance compared to other options because:

They raise money without ceding control of the club
It allows money to be raised in an environment controlled by the Club Board
- Shares are withdrawable by investors (i.e. you can get your money back) when the Club can afford it and at the discretion of the Club Board.
- As shares they don’t sit as a liability in the club accounts but also the Club won’t find that they have to repay funds at a time when you may not be able to afford it
It saves the Club money on costs associated with a share issue in a Company as it does not fall under the Financial Services and Markets Act regulation. Depending on the size of the offer the associated costs with a share offer in a PLC are likely to cost at least £50k to launch.
It offers subscribers the opportunity to share financially if the club is successful as a small amount of interest (say up to 2%) could be paid at the discretion of the Club Board.
It gives the possibility of the Club paying back all or part of an investor’s money, by buying back individuals shares, albeit there is no guarantee and it is most likely in the medium to long term
Investors in Community Shares must be a member of the Club, so there is an opportunity to gain a bigger more active membership
It should have broader appeal than to just the normal people that put their hands in their pockets

Other important factors:

We are talking about capital. Any share offer would not be about propping up losses. You’d want to have some projections to show how money would be used and hopefully reserves built up to enable withdrawals.
The overriding reason is that it is a social investment. However it is fairer (and should have more impact) than just asking for donations or concentrating on fundraising as there is the possibility of an exit route in the future. That’s not to say it’s a replacement for donations and fundraising tho, that can continue
Protecting 1 member 1 vote. Within the constitution there are different options available to incorporate Community Shares but the two most likely would be that the Community Share would either be an additional share which sits alongside the ordinary share (with the voting rights) or the rules could be simplified to allow one type of share which allowed individuals to build up a share account up to the legal limit for individuals of £100k but would need to contain enough money to meet annual membership subscriptions. Either way more shares doesn’t buy you more votes.

Possible tax incentives for investors:

It is possible that your Community Share offer might qualify for a tax incentive scheme such as Social Investment Tax Relief (SITR), the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS). These schemes are run by HMRC, and have various qualifying criteria. If a scheme qualifies for SITR or EIS individual investors have the chance to claim back up to 30% of their investment from their personal tax liability – investment must be for at least 3 years.
As you can see, a Community Share offer can suddenly become even more attractive when you consider an individual could withdraw all of their original investment, but pay 30% less tax on the amount invested, not to mention the feel-good factor of helping the local sports club.

Download our guidance document here, and read the guidance from Co-operatives UK here.