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Community investment

How to get your community to fund your social enterprise using shares – a type of social investment

What does it mean?

Community investment works by selling a share in an enterprise to people in the community. These people, as shareholders, control the enterprise.

Members of a co-operative society or community benefit society can become community shareholders and invest in local enterprises providing goods and services that meet local needs. Members only expect a fair and modest return on their investment. The return payable is based on the principle that interest should be no more than is sufficient to attract and retain the investment. Members invest on the understanding they will be rewarded primarily through a social dividend rather than a monetary dividend.

This long-term alignment of the interests of owners, investors and customers is at the heart of the community enterprise movement. And this works best when the community purpose of the enterprise is the primary motive for investment.

Co-operative societies or community benefit societies are particularly appropriate for organisations wishing to raise capital from their members as they have several special attributes that make them different to companies in this regard, one of which is enshrined democracy and protection of members' rights: co-operative societies or community benefit societies have to operate on a ‘one member, one vote’ basis, regardless of the number of shares owned.

The central task of all community shares initiatives is to build membership. Community investment works by selling a share in an enterprise to people in the community, who become members of the enterprise. These people, as members and shareholders, control the enterprise.

Who might use it?

People or communities who want to raise finance for a community project or resource that will generate its own income, like a building, a shop, renewable energy project or other community enterprise.

Community investment will only work if there is, at least potentially, a community that is willing and able to support the enterprise.

Community investment starts with community engagement. Without a community that has a shared identity and a common purpose, the idea will not work. But with a fully engaged community providing the capital for a community enterprise, there is real scope to improve the quality of community life.

Ownership and investment go together to form a strong bond, engaging communities in enterprises that serve their interests. Investors are more likely to become loyal customers, volunteers and activists that support the enterprise in achieving its community purpose. Community investment can strengthen the business model, but it also carries the risk that people’s money will be lost or their expectations will not be met. So part of community engagement must also be about community education, ensuring that people understand the enterprise, the risks they are taking, and what they can do to make the enterprise sustainable.

This type of share capital cannot be transferred between people. Instead, the society allows shareholders to withdraw their share capital, subject to terms and conditions that protect the society’s financial security. This means that a shareholder can cash in their shares with relative ease. Shareholders have a share account, and can increase or decrease their shareholding, or close the account altogether by withdrawing all their share capital.

Who provides it?

This type of social investment is not given by a single provider, but by community share holders.

The Community Shares website has more information on community shares.

The value of shares is fixed and not subject to speculation, although some societies have the power to reduce share values if the society is experiencing financial difficulties. Shareholders have only one vote, regardless of the size of their shareholding, so the society is democratic.

There is a limit on personal shareholdings of withdrawable share capital, currently capped at £20,000, and there is also a limit on the interest paid on share capital, based on the principle that interest should be no more than is sufficient to attract and retain the investment.

Community benefit societies can adopt a statutory asset lock, which prevents the society being sold and the proceeds of the sale being distributed amongst shareholders. This removes the possibility of capital appreciation and the scope for investor speculation.

Case study: Hudswell Community Pub Limited

Hudswell Community Pub Limited was created to save the only pub in the village of Hudswell, North Yorkshire. The George and Dragon closed down in 2008. There were several reasons for its closure – among them, the economic downturn hitting all businesses: the same year 1,866 pubs had been closed. However, the villagers refused to lose this emblematic place, so a group of people got together to re-open it.

One year later, in 2009, those who wanted to save the old pub joined to set up a community benefit society and proposed to issue a community share offer to raise the money to buy the business. 'At first the bank that owned the property didn’t take our offer seriously,' said Martin Booth, a member of the community owned enterprise.

It was not easy, but they finally succeeded. In the space of just over a year, they were ready to re-open The George and Dragon. Now, since June 2010, Hudswell Community Pub Limited runs what wants to remain as a real centre of village life. 'We want the business to be a success and to be profitable, but for our members it was providing a centre for community activity and working together to achieve a collective goal that are the most important aspects of what we are,' said Martin Booth.

The Community Benefit Society is formed by 202 members, who have invested over £250,000. Any person or organisation can become a member by purchasing shares – the minimum investment is £500 and the maximum £20,000 – although the co-operative’s rules state that at least 40% of the shareholders must live in the parish of Hudswell.

They all share the ownership of this venue for local pastimes, events and celebrations, and, in order to make it profitable, they have widened the range of services they provide. Apart from the traditional pub selling ales from local brewers, the pub has a library and offers free internet access. It also runs a shop to sell local produce and has allotments that provide vegetables and fruits for the pub and the shop. Actually, the co-operative plans to grow the business providing bed and breakfast accommodation in the near future.

'We want the business to be a success and to be profitable, but for our members it was providing a centre for community activity and working together to achieve a collective goal that are the most important aspects of what we are,' said Martin Booth, a founding member of the co-operative. 'I do think this is a very good way of saving the village pub and I’d be very happy for others to learn from us.'

Further help and advice

Online training: Measuring Your Return on Social Investment

Page last edited Feb 13, 2017

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