Raising finance, via community shares

IF the ambition is to save the local pub from closure or set up a community shop, there are, of course, several funding options available.

A traditional bank loan or mortgage is, not surprisingly, one option.

Another is crowdfunding, where a target is set and donations are sought, often in return for rewards.

Rewards too can play a part in another funding option. When an appeal was launched four years ago by a proposed new gin and whisky distillery – in Dingwall, in the Scottish Highlands – among the rewards on offer were bottles of the hoped-for products.

The alternative funding route explored by the GlenWyvis distillery project was ‘community shares’. Within the first 77 days of a first tranche of fund-raising, some 2,200 people invested a combined £2.5million in the distillery.

GlenWyvis is structured as a Community Benefit Society, a governance structure that has the right to issue ‘community shares’. Co-operatives too have that right.They are not called ‘community shares’ for nothing. According to a recent reported issued by Co-operatives UK (here), 80 per cent of the investors who, together raised an estimated £155m through ‘community shares’ since 2012, had done so “because of the wider social or environmental benefits of the organisation”.

Or, to put it another way, less than 20 per cent of the 104,203 people who invested the £155m declared they were primarily seeking a return.

That’s not to say a prospective ‘community shares’ project is able to duck its responsibilities, in putting together a well-researched and robust business plan; with any subsequent share offer document then publicised to as wide an audience as possible.

The co-operatives membership body, Co-operatives UK, has the authority to ‘sponsor’ an application to the FCA to become a Community Benefit Society or a co-operative. So too the Scotland-based organisation dedicated to advising and promoting community shares, Community Shares Scotland.

Says Morven Lyon, programme manager at Community Shares Scotland, many projects that she has supported are a blend of ‘community shares’ finance and more ‘traditional’ finance. And every investor in community shares requires to be re-assured of the prospects for the project.

Community Benefit Societies and co-operatives are run by their members, and it is a simple case of one-member, one-vote (no matter the scale of investment). Members elect an overseeing board (chair, secretary, etc), directly from among themselves.

Any banks or other sources of ‘traditional’ funding need to be clearly made aware of any plans to issue community shares.

Adds Isla McCulloch, programme manager at Co-operatives UK: “Openness and transparency are absolutely vital. That means, for investors in community shares, that they know what they are potentially getting into, including the possibility of not receiving a return, perhaps when money is tight.

“Community shares investors are generally ‘ordinary people’, not high-net worth individuals, and need to understand the potential risks around their investment. 

“However, they should also understand that, through their investment, they become co-owners or members of the organisation and can play a role in its operation and, hopefully, future success.”

Community Shares Scotland is funded by the Scottish Government and the National Lottery, and sits within Development Trusts Association Scotland. It was established in 2014 and offers, essentially, a hand-holding service (up to six days, give or take, of professional consultancy).

Its website includes GlenWyvis among its case studies, which (at the time of writing) features the stories of, among others, a community school, a couple of energy schemes and a couple of shops.

Of the case studies on the Community Shares Scotland website, one – Strontian Community School – has an ‘affordable housing’ element.

Another Scots initiative perhaps worth noting is Moray-based Community Benefit Co-operative, Ekopia (https://www.ekopia.org.uk). And there is an appeal (here) to purchase a property in Edinburgh, to accommodate people who are homeless.

But neither Lyon nor McCulloch are aware of any other community shares-based housing projects in Scotland, though believe it is only a matter of time – not least because there are several in England, such as Calder Valley Community Land Trust (https://caldervalleyclt.org.uk) and Student Co-op Homes (https://www.studenthomes.coop), which includes Edinburgh Student Housing Co-operative.

Says Lyon: “We are advising a Community Benefit Society in Orkney, which is aiming to raise funds through community shares. If it comes off, the Community Benefit Society will own the land and rent it to a housing co-operative at a fair rate. The co-op will then build and operate the housing. That feels like a very neat fit: Community Benefit Societies are mostly about ‘community’; co-operatives, meanwhile, are about members.”

The prospect of the land delivering a regular rent helpfully answers one of the key questions in any business plan: how are investors rewarded, potentially each and every year?

Within a ‘community share offer’ document, it needs to be made clear how interest might or (in exceptional circumstances) might not be annually issued and also how investors can withdraw their stake.

Among other annual obligations is filing accounts with the FCA.

Ongoing is a need to regularly communicate with investors, not least if there is any emotional bond between them and the project.

Model constitutions are available from both Co-operatives UK and Community Shares Scotland, though it’s worth checking on any fees that might be applicable, including for tweaking clauses (say to reflect a determination to provide ‘affordable’ housing, in perpetuity).

Adds Lyon: “We’re delighted to see community businesses showing so much ambition and confidence, at the moment. This year has perfectly showcased this model as a strong alternative to the status quo.

“Across Scotland, we’ve seen community businesses really step up in the face of the Coronavirus pandemic: through being grounded in the communities they serve, and operating with a ‘more than profit’ ethos, these organisations have been well placed to do that bit more.”

Further reading: The Community Shares Handbook, here, which, among things, considers taxes.

Also: ‘Understanding a maturing community shares market’, here.

Mike Wilson is a member of the editorial team

Photo: Dunbar’s Crunchy Carrot, in East Lothian, courtesy of Community Shares Scotland

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