Creating a long-term liquidity strategy

Withdrawable shares provide small investors with an exit route from investment not available to investors in transferable shares. This liquidity is the main reason why the society form is so suitable for a community enterprise with a large number of small investors.

Withdrawable share capital solves the problem of liquidity for investors, but it does so by creating a responsibility for societies to provide that liquidity. This is a major difference between a society and a company, which has no responsibility to provide liquidity for shareholders unless it has issued redeemable shares.

There are five main ways in which a society can provide liquidity for members holding withdrawable shares. Before issuing community shares, a society should decide which of these methods it will use, and ensure that this is reflected in its business plan and share offer document. This, in turn, will depend on the starting point of the society, its trading activities, objects and purpose. The methods can be used singly or in combination.

  1. Raising new share capital
  2. Reinvestment by existing members
  3. Redemption of shares from reserves
  4. Capital depreciation funds
  5. Replacement with loan capital

For more information on these methods of providing share liquidity, see http://communityshares.org.uk/resources/handbook/liquidity-withdrawable-shares