Brought to you in partnership with Locality, Plunkett UK and Power to Change
The Community Shares Handbook
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1.5 Starting points

1.5.1 The initial stimulus

Since the inception of the Community Shares programme in 2009, the majority of community share offers have been made by new societies. Most of these societies have been formed by communities in response to one or more of the following:

  • a community is about to lose a local service, for instance, a pub, shop or post office, or any other community service that is encountering market failure
  • a community is being poorly served by an existing enterprise, for instance, supporters of a football club may feel that the current owners do not serve their interests, or a local service is too expensive or fails to address local needs
  • a community need or interest is not being met, for instance, there may be no local sports facilities, poor broadband connections, or a lack of flexible workspaces for new businesses
  • a community is inspired by new ideas or opportunities to act collectively, for instance, by the scope to establish community renewable energy schemes, local food initiatives, or develop community land trusts for affordable housing.

These stimuli result in new societies being formed as pre-start initiatives, or to act as the vehicle for acquisitions and buy-outs of existing enterprises that are failing in these communities. 

1.5.2 Pre-start initiatives

There are four main challenges facing all community business pre-start initiatives:

  • developing a robust, competent development team capable of taking the idea forward to start-up
  • establishing the business case for the proposed enterprise; testing the business viability of the idea and showing that the enterprise will be profitable; ensuring that the proposed development is in scale with the target community
  • identifying the target community for the initiative; establishing contact with this community, and winning their support for the initiative; engaging the community in the development process
  • obtaining the resources to pay for the pre-start development costs, which can amount to at least 5% to 10% of the capital costs at start-up.

A lack of resources is probably the greatest barrier for pre-start initiatives, with some new societies taking three or more years to become investment-ready.

1.5.3 Acquisitions and buy-outs

Acquisitions and buy-outs mainly arise when a community is driven to rescuing a local business threatened with closure or, in exceptional circumstances, where the community feels poorly served by the business. Communities engaged in acquisitions and buy-outs face all the same challenges as pre-start initiatives, but with the extra burden of:

  • having to act quickly, especially if there is competition to buy the business or its principal assets
  • having to commit to development costs with no certainty that it will be successful in acquiring the business, with the risk of substantial losses
  • the difficulty of agreeing a fair valuation for the business, especially when the principle assets are worth more as non-business assets.

The first of these challenges can be moderated by using the powers included in the Localism Act to list Assets of Community Value. This gives communities six months in which to prepare a bid to purchase a listed asset if it is put up for sale.

Compared with a new-start enterprise, an advantage of acquisitions and buy-outs is that at least the business in question has a track record, which provides a benchmark for planning performance improvements. 

1.5.4 Start-ups

Even when a new enterprise has got through the pre-start stage and is able to prove that it is investment-ready, there is still a lot to do before it can launch a community share offer. There are four main documents it needs to have in place:

  • a governing document that sets out the rules of the society, defining its purpose, objectives, membership, management and form of share capital
  • an offer document aimed at the target community promoting the sale of share capital; community share offers are normally exempt from financial promotions regulations, but are nevertheless bound by contract law to observe good practice and follow guidance on these matters
  • a business plan that provides the evidence to support the assumptions and assertions made in the offer document
  • a community engagement plan for recruiting members to the society, involving them in the business model, and securing their investment.

Community share offers are markedly different to share offers made by private enterprise, in the following ways:

  • Private enterprises usually only make public offers at a relatively late stage in their development, typically as part of an exit strategy for private equity. In contrast, community share offers tend to be made by new enterprises with no proven record of success.
  • New private enterprises usually raise share capital from family, friends, business angels and other types of sophisticated investor, whereas community share offers are aimed at people who are unlikely to have had any prior experience, knowledge or competencies in investing in enterprise.
  • Start-up private enterprises tend to raise share capital through private placements, which might lead to a handful of investors purchasing stakes in lots of £50,000 to £100,000. In contrast, the average number of investors in a community share offer is 200 and the average amount invested is £1,000 per investor. 

1.5.5 Established community businesses

Research commissioned by Power to Change in 2019 estimates there are 9,000 community business in England. The research identifies specific market sectors community businesses are engaged in, some of which are also heavily represented by societies issuing community shares, such as community energy, shops and pubs. It also identifies market sectors where there has been relatively little community shares activity, such as village halls, transport, housing, sports, leisure and libraries, as well as arts centres and facilities, parks, health and social care. These sectors represent an important opportunity for the growth of community shares. Many of these enterprises are structured as registered charities, community interest companies, or simple companies limited by guarantee, all of which can be converted to a suitable form of society (see Section 2.6).

Some of these sectors, notably housing and sports, include many long-established community businesses that are structured as societies. There are more than 8,000 societies in the UK that are over 10 years old, but only 40 or so of these societies have ever issued significant amounts of withdrawable share capital. This includes over 1,500 societies in the housing sector and more than 400 societies in the sports sector. Very few established societies use the full scope of their corporate form to engage the communities they serve, and it may well be that very few of these societies fully appreciate the capability their corporate form offers for simultaneously raising investment capital and engaging their communities.