Community Shares

Jo BirdCo-operative Business Consultants

Sept 2013

Grants

Supply chain

Loans

Equity

Core, project, sponsorship

Prepayment, credit, in kind

Secured, unsecured, bond

Withdrawable, transferable, mutual

Raising Finance

1844, Rochdale Pioneers set up co-op shop 28 founder members £1 each to rent a shop and buy initial stock £1 worth c£100 today – this was a

community share issue Successful model taken up by thousands But tradition lost in last century

History – UK Consumer Co-ops

Rochdale Pioneers, 1844

Voluntary and open membership Democratic member control Member economic participation Autonomy and independence Education, training and information Co-operation among co-operatives Concern for community

Co-operative Principles

The Return of Community Shares

Community shares has mushroomed 300 Societies registered 120 share offers completed Over £20 million raised from 24000 people Average amount raised £200k Average 240 members investing £900 Many share offers offer 3-8% interest

From 2009 onwards

Key Sectors for Community SharesFood and farming

6%

Renewable energy

47%

Community shop and other retail

22%

Pubs and brewing16%

Regeneration and Land 6%6% Sports 3%

Four types of share offer Membership offer: To recruit members

Nominal share capital. Pioneer offer: Small group of founder

members raise high risk capital. Ideal for Seed EIS.

Target-bound offer: To raise a target amount. Ideal for S/EIS.

Open offer: To maintain open membership and allow withdrawals, supported by track record.

Community shares: key elements

Business model

Community around co-op

Offer document

Governing documentCommunity

Shares

Regular communication with members – mailing list, newsletters, facebook, website

Maintaining momentum Public meetings –to introduce the idea, and

to launch Local and national media coverage Activities, campaigns and working groups

Building a community around the co-op

Members

Member engagement

Activist

CustomerVolunteer

Investor

Service user

Worker

SupplierDirector

Expert

Enterprise Investment Scheme HMRC scheme 30% tax relief with EIS 50% tax relief with Seed EIS, <2 yrs trading,

up to £150,000 share offer Loss relief More return than a cash ISA Cannot withdraw shares for 3 years Some sectors are excluded inc financial

services, on-lending, farming, land, property www.hmrc.gov.uk/eis/

Underwriting offers: Appraisal report and due diligence Community reassurance Enable asset purchase Fills shortfall, max a third up to £50,000 Enables monthly instalments Arrangement fee 2% and interest 8%

Not possible for Company Limited by Guarantee to issue shares

Expensive for Company Limited by Shares

Community Interest Companies

Regulated by FCA under FSMA 2000.

Companies

Only Co-op and Ben Com Societies A unique form of capital One-member-one-vote not one-share-one-vote £20,000 maximum holding of withdrawable shares Withdrawable shares cannot increase in value, but can

decrease Withdrawable under certain conditions Interest can be paid on shares Mostly outside remit of FSMA 2000

But share offers are still covered by the Misrepresentation Act 1967

The share offer document must offer a fair view of the proposal on which people can rely

The FCA still has an interest – good practice guidelines have been developed with the Community Shares Project

Exemption From Regulation, But ...

Tree work and wood fuel business Part buy out of sole trader in 2012 Raised £140,000 from 140 members Minimum £200 investment Gained EIS afterwards

Case Study – Tree Station

FC United of Manchester

Football club formed due to rising ticket prices and market failure

2,000 fans attend non-league matches 3 teams Raised £1.7m from 3,000 members EIS Share offer still open Minimum £200 £5m blended finance inc grants and loans

Case Study – FC United of Manchester

Pub in village of Hesket Newmarket, Cumbria Came on the market in 2002 Concern about future of last pub in village The community bought the pub a year later 124 members with an equal stake of £1,500 Members elect a Board of between 3 and 15 The co-op appoints a licensee – experienced

local pub manager – to run the pub Turnover increased from £90k to £250k Now provides 12 local jobs

Case Study - The Old Crown

Set up to install a 65kw water turbine on River Leith in the small town of Balerno near Edinburgh

Will generate electricity, sold to National Grid, income from Feed In Tariff (FIT)

Members elect a Board, but 3 Directors appointed by Balerno Village Trust

Total financial package of £313,000 Raised over £150k community shares, plus grants

and loans Seed EIS tax releif £60k a year for community projects

Case Study – Harlaw Hydro

• Free grant for advice and support• From the Co-operative Group • To set up or grow co-operative enterprise • Registration as a co-operative • Membership, democracy, decision making• Business and financial planning• Community share issues• Can re-apply after 12 months• www.co-operative.coop/enterprisehub

Further resourcesCommunity Shares www.communityshares.org.uk

Co-operatives UK www.uk.coop

Co-operative and Community Financewww.coopfinance.coop

Co-operative Business Consultantswww.cbc.coop