2.5 Investing in other entities

While a society cannot be registered for the sole purpose of raising share capital to invest in other entities, it is not uncommon for societies to invest in other community share offers as a way of using their surpluses to further their wider aims, objects, and community benefit. Given the long term, patient nature of community shares, care should be taken with any investments to maintain liquidity and solvency of the society investing. 

A distinction should be made between the investment of the society’s general reserves or surpluses in another society as above and raising share capital specifically to invest in another entity. In this latter case, it is recommended that the share capital raised should be invested in a way that maintains member control over the terms of the investment. The terms of this share raise would need to be explicit in any share offer document inviting investment. 

Further detail on investing in other entities can be found in Section 2.8 of the Community Shares Handbook. 

Accounting for investments in another society’s shares 

Any investment made in community shares in another society should be measured at the transaction price of the shares, i.e. the nominal value of the shares. Any transaction cost should be written off immediately to expenditure since society shares can never be worth more than their nominal value. Any ongoing measurement of the share value should be based on the historic costs less impairment, which is what would be received if withdrawn. 

The transaction cost should be accounted for as an impairment in the Revenue Account.

In the rare occasion that shares have been devalued as per the process in section 2.4 above, then they should be measured at the new value.

These shares would sit in the balance sheet as Assets. Whether they are considered Fixed Assets or Current Assets depends on the nature of their withdrawability, and the society’s intentions. In the vast majority of cases they are fixed assets.

If they can be withdrawn within the next financial year, they can sit as investments within the Current Assets section of the balance sheet. If they cannot be withdrawn within the next financial year, they should sit as Investments in the Fixed Asset section of the balance sheet. Any notes to the accounts should explain all elements of this investment including the historic measurement, any impairments and any movements between Fixed and Current Assets.