All enterprises need capital to start, to grow, and to be sustainable. This is as true for community business, as it is for any other type of business. In an era when government funding for communities is diminishing, it has fallen on communities themselves to find ways of financing community business. Community fundraising has traditionally relied on grants, gifts and donations, but there is a limit to how much people can afford to give. Even quite small community businesses, such as a local shop or pub, may need hundreds of thousands pounds of start-up capital. Banks and social investment institutions are reluctant to bear all the risk, and want hard proof of community support before investing.
Community shares are a type of share capital, unique to co-operative and community benefit societies, that are ideally suited to the needs of community businesses. Community shares in societies are wholly different to share capital in companies, represented by two entirely separate and distinct bodies of corporate legislation; society law and company law.
Societies can issue a form of shares known as withdrawable share capital, which is unique to society law. Withdrawable share capital can be withdrawn from the society, subject to the society’s rules and any conditions set out in a share offer document. Most societies have rules that give the board discretionary powers to refuse or suspend withdrawals if it is financially prudent to do so.
This means withdrawable share capital is fully at risk. Members could lose some, or all, of the money they invest. But they also have the scope to withdraw some, or all, of their capital when they need it, subject to consent. Unlike with transferable shares, members don’t have to find a willing buyer, or negotiate a price for their shares. Voting rights in a society are normally attached to membership rather than share capital, with most societies adopting the co-operative principle of one-member-one-vote, irrespective of shareholding, this is quite different to the types of shares most people are familiar which are one-share-one-vote.