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Community Shares FAQ
Frequently asked questions
- Should we be a co-op?
Are you going to be operating for your own benefit, or that of your community?
When registering as an IPS (Industrial and Provident Society) in order to raise share capital, this needs to be stated.
If you are set up for your own benefit, then become a bona fide co-operative. This wil not give you an asset lock- members will be able to sell assets and keep any gain in value from the original share offer. Wessex Community Assets, as its name suggests, sponsors Community Benefit Societies through the registration process with the FSA (Financial Services Authority).
- Can a Community Interest Company, a CIC issue shares?
Yes. However, they would be transferable shares and would require a 'regulated prospectus'.
This makes it very expensive, tens of thousands of pounds.
- Can a charity issue shares?
No.
- How much of a financial return should/can we offer investors?
There is no legal limit other than it must be sufficient to raise the money and keep it.
If the interest rate is too low, investors will want their money back. The interest paid on shares must not be proportional to any cash surplus- a good year must not mean high interest (although a bad year may mean none). Dividends paid to co-op members are different to interest paid on withdrawable shares.
- How much do we have to pay investors?
Nothing at all. If the Board decides the finances are not robust, investors will have to accept a 0% return.
- How much does it cost to raise share capital from the community?
It depends...
You will need to publicise your share issue, you might want your offer document to be glossy, postage needs considering etc.
The main cost is time. There is a lot of admin in accepting cheques, completing paperwork and contacting people.
You may also need/want to pay for professional input- legal, planning etc.
- Can an Industrial and Provident Society accept gifts and loans?
Yes. However, sooner or later you HAVE to pay a loan back. Withdrawable shares in an IPS can allow an investor to receive their money back but only when the Board is happy that the finances allow this. Unlike a loan, shares link the investor with more of the risk involved in an organisation. A good way of keeping people interested...! Gifts can be accepted but our research shows that people will invest more than they give. The chance of a financial return and the prospect of withdrawing their money at a later date means sums can be larger.
- Is an IPS exempt from paying tax?
No. You may be able to negotiate a reduction in business rates but any trading surplus will attract corporation tax. It is worth remembering that investors' interest payments are deducted before tax as it is an expense as opposed to a company where share dividends to investors are paid out of profits after tax. In other words, paying your investors lowers your tax bill.
David Mazzetti has found a bargain coffee machine for the Real Food Store. Well done!- Can I sell my shares in an IPS?
Not if they are 'withdrawable shares'. You can offer them back to the society you invested in and they will consider if they will allow your money to be taken out. The share value can never rise above the price you paid for them (usually £1) and they can reduce in value if the society is struggling financially. Issuing shares that can be sold to others- transferable shares- is regulated by the FSA and so is an expensive business only suitable for large share offers. Transferable shares allow investors to get their money back without relying on the society they invested in to have the cash reserves necessary but shares that are not publicly traded are difficult to value.
- Can I do this before next week?
No. It takes longer to register an IPS with the Financial Service Authority's Mutuals' Registration Service than it does to set up a company. Unlike Companies' House, the FSA still use a lot of paper. It takes about three weeks for the paperwork to be turned around. You need to be aware that this is not to be taken lightly. There are running costs and legal implications to the founders (3 required) and there are fines for not filing accounts, annual returns etc.
- Can I ask another question?
Yes. Click here.