1.3 What are community shares?
Community shares are defined by the Community Shares Unit as non-transferable, withdrawable shares in an independent society with a voluntary or statutory asset lock that is owned and democratically controlled by the community it serves. The term is applied to societies that have at least 20 members, who together hold at least £10,000 in share capital in the society. Shareholders have the right to withdraw their share capital, subject to the terms and conditions stated in the society’s rules and share offer document. But they cannot sell or transfer their shares or liquidate the business in order to achieve a capital gain.
Withdrawability solves a liquidity problem faced by minority shareholders in a small company. Shares in companies are usually transferable, not withdrawable. Under normal circumstances, companies are not allowed to redeem their shares. Instead, the shareholder must find a willing buyer for the shares, which can be very difficult for minority shareholders, especially if the company is too small to be listed on a stock market.
In solving the liquidity problem for shareholders, societies create a liquidity problem for themselves. A society must plan how it will generate enough cash to allow share capital to be withdrawn. The most effective way of doing this is by attracting new members and new shareholders, to replace members and shareholders that are leaving the society (see Section 2.3).