Community Shares are one of the most misunderstood mechanisms for making social investments. Resonance Investment Manager Ben Wrigley demystifies.
1 – They’re shares. Not in the traditional sense of an equity share in a company, which can be traded on an exchange, and where the value hopefully goes up (but can – as the small print will tell you – also go down). They’re also not really debt as that typically has a fixed term (over which its repaid) and doesn’t usually provide membership or voting rights.
Community shares are “withdrawable share capital”, which is uniquely issued by co-operative and community benefit societies to raise money to buy assets and hold them for the benefit of the community in perpetuity. They typically offer a target rate of return, membership and participation in decision-making.
Our Friends at Stockwood CBS have raised over £1 million in community shares which have been invested in buying land for sustainable farming, creating a highly desirable business park, and developing a renewable energy scheme. These assets are owned by community investors who have received a 5% dividend for four years in a row.
2 – There’s no “upside”. A common complaint is that community shares can’t increase in value; providing investors with a higher return (in addition to the dividend paid).
This is because the capital raised is used to purchase a local asset and preserve it; not to increase shareholder value or maximise sale value (with all the risk that entails). Because there is an underlying asset (e.g. property, land, energy assets, etc.) even if the project failed there is every chance that the original money will be returned to investors.
3 – You can’t get your money back. It’s true that when shares aren’t listed on an exchange, and can’t be bought and sold on an open market, it’s less easy to sell them. But this is also true of every investment into a private (rather than public) company.
Because the money invested is typically used to buy assets it may be impossible for the Directors to find the money straight away without selling the whole thing. However, by liaising with the Board, investors will be able to get their money back once sufficient profits are being generated, or by the company attracting new investors to replace them. Community Shares are “withdrawable” (albeit with a notice period and at the discretion of the Board) or can be transferred.
The solution that Stockwood CBS has developed is that it will continue to provide enough “liquidity” so that its investors can withdraw capital should they need to; this has already happened on a number of occasions.
4 – They’re only for people investing small amounts of money. With minimum investments of £20 or £100 it’s true that organisations want to attract as many investors and members as possible to maximise community involvement, and also to make community shares available to everyone.
However, attractive community organisations, including those with a track record of paying a consistent return (e.g. Stockwood CBS and our friends at Mustard Seed Property) have also attracted large individual investments (e.g. over £10,000) and very large £50,000 to £100,000 investments from trusts and foundations who share their desire for change.
For example, Mustard Seed Property has received £100,000 from Esmée Fairbairn and £50,000 match funding from Andrews Charitable Trust; both foundations are strongly aligned with their mission.
5 – They’re only for locals. Local involvement is crucial, but these investments are also entering the mainstream with participation from national investors; who believe in the mission of the social enterprise but may also want to invest some of their money in ethical organisations who pay a competitive rate of return.
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Resonance Impact Investment Limited, a subsidiary of Resonance Limited, is authorized and regulated by the Financial Conduct Authority (FCA). Firm number 588462.
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