Frequently Asked Questions

Business plan

Community shares are a way for people to invest in community enterprises. Their input should not be treated as a donation, there should be a viable and sustainable business proposition so that shareholders can see return on their investment if it is successful.

The business plan should clearly identify sources of income. Community businesses may have several sources of income – not just sales but also for example donations and grant funding.

Community shares can form part of a wider funding package. Many grant funders look favourably on the money raised through community shares as it demonstrates demand from the community, meaning a share offer can be a good way to leverage additional funding.

The business plan should clearly identify sources of income. Community businesses may have several sources of income – not just sales but also for example donations and grant funding.

It should be clear whether any sources of funding are reserved, for example grant funding that is tied to specific costs.

It should be clear whether the mix of funding is likely to change over time, for example if donations are likely to decrease as trading income increases.

When launching a community share offer it’s important that the organisation is able to communicate clearly to potential investors how much money is needed and how it will be spent. The organisation may want to set different targets: a minimum sum below which plans could not proceed; an optimum figure to achieve what is set out in the business plan; and a maximum sum beyond which no more shares will be sold.

Community shareholders are entitled to “withdraw” their shares from the society provided it has the finances to do so. Withdrawals are at the discretion of the board but the society’s business plan should make clear when investors can expect to see their money returned.

Unlike shares in a private company, community shares do not allow for distribution of profits among members, however an interest payment can be made. Interest should be treated as a business expense and should only be at the lowest level required to attract investment.

Societies can also offer other incentives to shareholders, such as receiving a gift in return for their share or receiving a discount from the business in future

The business plan should consider whether the good or service offered could be provided by another business or charity, and if so what strengths and weaknesses the society has over its competitors.

Some community share offers will be eligible for tax relief, meaning those who invest can claim some of their investment back as a tax deduction. Available schemes include Social Investment Tax Relief (SITR), the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

Organisations may wish to access professional advice on tax relief however basic guidance is available at: getsitr.org.uk

Governance

In some cases a community share offer is taken forward by an existing organisation, such as a development trust or an established charity. This can be helpful where the organisation already has a good reputation within the community or where there are established skills and experience within the board.

Community shares can only be sold by cooperatives or community benefit societies, meaning that if the organisation is constituted as a different legal entity – such as a company limited by guarantee or a SCIO – it will need to think about how to restructure itself. One way to do this is to convert the existing organisation, changing its status to a society. If it is decided that the existing organisation should continue to exist in its current form, a wholly new society can be registered with some links between the two bodies, such as a set number of members on the management committee and agreements of what happens with the society’s profits.

The good governance of a society depends on having an active, skilled management committee, elected by the members, to oversee the affairs of the society. The committee should identify the skills and experience needed to govern the society and manage the enterprise – it is best practise to complete a regular ‘skills audit’ wherein the committee may identify any gaps in their ability.

Where gaps are identified, a plan should be put in place to co-opt someone with the appropriate skills to join the committee. Equally, it is important to have a regular ‘churn’ to the committee to ensure that you do not get burn-out within the committee and there is a plan to welcome fresh ideas and skills. In most societies, at least one third of the committee should step down at each annual general meeting to allow for election of new members.

Only a cooperative or community benefit society can issue community shares. These are distinct legal structures, governed by the Co-operative and Community Benefit Socieities Act 2014 and registered with the Financial Conduct Authority.
Societies are bodies corporate and provide limited liability for both shareholders and board members, affording the same rights and protections as other forms of governance such as a limited company.

Both co-operatives and community benefit societies are owned and controlled by their members. A community benefit society must fulfil certain criteria to ensure it serves a wider community beyond it’s shareholding members. Due to these additional criteria, a community benefit society can achieve charitable status.
More information is available in the Community Shares handbook: http://communitysharesscotland.org.uk/resources/handbook

Any organisation seeking to become a co-operative society or a community benefit society in the United Kingdom (UK) must register its rules with the Financial Conduct Authority (FCA). The FCA website has a section devoted to the registration of new societies, which provides all the necessary forms, fees and notes. To register a new society, the FCA requires the name, contact details and signature of at least three founder members, including the secretary of the proposed society. The application form states that the FCA service standard for societies is to register 90% of valid applications within 15 working days. Applicants are required to submit a set of rules that must cover 14 matters required by law.

Cooperatives and Community Benefit Societies are governed by “rules” registered with the Financial Conduct Authority (FCA). Much like the articles of association for other types of organisation, these set out key information about the society, such as its objects, meeting conduct, and management committee requirements. They will also detail the conditions of membership and key information regarding community shares, such as the value of each share and the maximum shareholding.

To reduce the time and cost of registering rules with the FCA, there are a number of sponsoring bodies who can supply “model rules” – essentially templates which the organisation can use as a starting point. Some sponsoring bodies are sector-specific – for example specialising in community shops/pubs or in renewable energy schemes – whereas others have a broader remit.

A list of sponsoring bodies can be found at: https://www.fca.org.uk/firms/model-rules-sponsoring-bodies

When registering its society rules, an organisation should consider whether it will need to comply with any specific legislation or meet the requirements of other bodies (such as grant funders). For example, funders such as the Scottish Land Fund have requirements around open and majority-local membership. Similarly, some funders may require the society to hold an asset lock.

There is a range of model rules available and Community Shares Scotland can help you to select those most appropriate.

Whereas a cooperative society exists for the benefit of its members, a community benefit society must meet four key characteristics demonstrating that it is of benefit to a wider community. For that reason a community benefit society can be registered as a charity, whereas a cooperative society cannot.

Guidance on the four key characteristics of a community benefit society can be found at: https://communityshares.org.uk/resources/handbook/community-benefit-societies

The society will need to have an active bank account before the share offer is launched so that it can accept payments.

Mutual societies are a well established form of governance and most banks should be familiar with them, however the attached information note may be helpful if they have queries: https://www.fca.org.uk/publication/finalised-guidance/industrial-provident-societies-guidance-note.pdf

Community

All businesses depend on customers for income. In community businesses with social objectives, there may also be goods or services that are provided at discounted rates or even for free to certain groups. For example, a community kitchen may provide free cooking workshops to vulnerable people. In developing a business plan, a community group should think about who will access their goods/services and to what extent those will also be the people providing income.

In some cases the people who buy community shares will also be the people who access the goods or services the enterprise provides. For example, a community shop will likely find most of its support from its customers. For other community share offers investors may come from a wider background. An enterprise with a strong social objective, such as those providing free or discounted services to those in need, may receive investment from people who will never actually use the enterprise themselves. Similarly, community share offers that offer interest payments or other financial incentives may see shares purchased by people who see it as a good investment.

The organisation should consider the mix of potential investors and whether messaging will be different for each group.

The success of a community share offer is strongly influenced by the quality of the community engagement. Capturing the attention, interest and support of people within the defined community requires careful planning and execution in order to build community identity. It means communicating the purpose and activities of the society in a way that relates to people’s mutual, community, or public interests. Attracting an audience is the first step in community engagement. There are a wide range of methods for doing this including the use of websites, social media, email and text campaigns, public meetings, events, door-to-door leafleting, public media coverage and, if budgets allow, advertising.

In some cases, the community will be easy to identify and rally. Alternatively, some effort might be required to gather and galvanise support. Try to articulate the community identity and purpose inshort key messages. A clear vision and call to action is essential when building community.

It is essential to clarify whether the community agree with the vision and plan.

Some communities will have been recently consulted and may already have an established community action plan. Does the enterprise align to the needs identified in that plan?

It is essential to clarify whether the community agree with the vision and plan.
Some communities will have been recently consulted and may already have an established community action plan. Does the enterprise align to the needs identified in that plan?

Consulting with the community may help to generate new ideas or identify approaches that had been overlooked. There may be people who support some aspects of a community business idea who would be more willing to invest if it is adapted – for example, a community pub may achieve wider support if it is made more family friendly.

A successful share offer needs to be seen by as many potential investors as possible, meaning good marketing is essential.

Some share offers will be easier to promote than others. For example, a community shop in a rural village will primarily have its shareholders from within the local area. The share offer campaign might be run predominantly through word of mouth and face-to-face communication.

Larger campaigns, particularly those seeking to engage shareholders across a larger geographical area, may need more sophisticated campaigns, including elements such as social media, websites, engaging with press and attending events. There should be a clear marketing plan assigning tasks to volunteers who are appropriately skilled.

It may be helpful to think of people within the community who would like to support the business idea but who are less able to invest financially. For example, young people in the community may be able to provide social media knowledge and IT skills.

There are a number of ways for potential investors to purchase their shares.

Some societies manage this process entirely by themselves. Potential investors are simply issued a form to return with required details and are then issued a share certificate once their application has been processed. In most cases payments will be taken by cheque or bank transfer, unless the society has a website that can support card payment.

A number of digital platforms are also available. These allow the share offer to be listed online, with payments and much of the administration handled by a third party. There are several advantages to using an established platform. It may help the share offer to be seen by more potential investors, for card payments to be taken, and it may give potential investors peace of mind that their payment will be safe and secure. It also reduces the administrative workload for volunteers. However, established digital platforms will charge a fee for their services and this will need to be factored into the business plan.