Community Shares

Iain Maclennan

Secretary, Portsmouth Ecological Co-operative Society Limited

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“There is no money that works harder for the community than finance raised in share capital from members of a co-operative social enterprise. This is not the stock market, laundering your money around the world. It is a local enterprise, accountable to you as a member, serving you and benefiting your community”

Ed Mayo, Secretary General, Co-operatives UK

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Why do we need community investment?

• All enterprises need risk capital to start, to grow, and be sustainable

• One reason why social enterprises struggle to compete with private enterprises is their lack of risk capital

• High levels of profitability needed to repay debt may be incompatible with social aims

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How are social enterprises different?

• Social enterprises are

…businesses that have primarily social objectives, whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

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Why do people invest in community enterprises?

• Community aims are the prime motive (social return on investment rather than financial return)

• Members of the community can directly invest in their own enterprise (withdrawable share capital / community shares)

• Investors can help to manage the financial risk of the business themselves

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What’s the difference between withdrawable share capital and

conventional share capital?

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Transferable shares

• Can be transferred or sold by shareholders to a third party at a mutually agreed price

• Expectation of regular dividend and capital appreciation

• Confer ownership – one share one vote• Subject to market speculation

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Withdrawable shares

• Cannot be transferred between people• Share capital can be withdrawn (subject to

terms and conditions)• Value fixed – not subject to speculation• Shareholders have only one vote, regardless

of size of shareholding – hence democratic• Limits on shareholding, interest etc.• Option of asset lock

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Safeguards

• Statutory asset lock

- prevents the society being sold and proceeds of sale being distributed among shareholders

- Removes the possibility of capital appreciation and the scope for investor speculation

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Problem of the solution to a problem

• Withdrawable share capital provides solution to problem of finding buyer for minority shareholding in enterprise that’s too small to be listed on stock exchange

• Business must plan how it will finance the withdrawal of share capital

• Solutions all rely on the society being a PROFITABLE BUSINESS

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4 key elements to successful community investment project

• Business case for investment• Community of investment• Governing document - the ‘Rules’• Offer document - Financial Services and

Markets Act 2000- exemption from regulation- importance of robust standards of voluntary self-regulation- protect the reputation of community shares

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Any questions?eco-op