5.9 Purchasing shares by instalments
Community shares – payment by instalments
The widespread adoption of instalment-based purchasing in mainstream finance can be structured as an ethical equivalent to support inclusive investment into community shares capital.
Community share offers typically specify a minimum individual investment. While this minimum can be essential for driving forward the share offer and ensuring sufficient capital is invested to allow the project to take place, this minimum individual investment threshold can present a barrier to participation for individuals unable to commit the full amount upfront. If the society offers payment by instalments, this could allow a more diverse cross-section of the community to invest and co-own the business.
Some societies consider increasing the minimum investment level on the assumption that this will reduce the number of investors required and accelerate capital raising. While this approach may appear efficient in principle, it risks narrowing the pool of potential investors and undermining the inclusive ethos that underpins community shares. Share offers are not solely financial instruments; they are also vehicles for building engaged, representative membership. Excessively high minimum thresholds may inadvertently create exclusion rather than participation.
Some societies, especially those with a high minimum shareholding requirement, may invite applications from people to purchase shares by instalments. If the society is making a time-bound offer and any purchase by instalments is likely to extend beyond the closing date of the offer, then it will be necessary to decide how such purchases count towards the fundraising targets, and how the society will meet its cashflow needs.
Delivering instalment-based investment
At present, the primary community shares platforms do not support instalment payments. Societies wishing to offer this option must make alternative arrangements, either by managing part or all the instalment process.
This may involve hosting payment functionality through a society’s own website, or customer relationship management (CRM) system, or administering payments through a manual offline process. Online payment providers such as Stripe, GoCardless and PayPal offer subscription-based payment services that can automate recurring transactions, often for a fee. These systems can, in many cases, be integrated with online application forms.
Alternatively, societies may ask investors to establish standing orders or direct debits over a defined period. While viable, this approach typically requires more active monitoring and administrative oversight.
Several societies have piloted instalment models. Stretford Public Hall, for example, has implemented this approach across multiple community shares offers. Their most recent offer included the option for members to invest the £100 minimum through ten monthly instalments, with automated collection. Where investors failed to complete payments to the minimum threshold, contributions were refunded in full.
Experience from such pilots indicates that instalment options can significantly increase accessibility. In the case cited, approximately one-third of investors chose this route—many of whom would otherwise have been unable to participate. Shorter instalment periods reduce administrative complexity, while longer periods tend to enhance affordability; societies must balance these considerations according to their capacity and objectives.
Implications for membership and governance
Introducing instalment payments requires careful alignment with society Rules and share offer documentation, particularly in relation to membership.
Under many Community Benefit Society rules, a minimum shareholding (often £1) is sufficient to confer membership. However, share offers typically define a higher minimum investment level (e.g. £100). Where an individual begins payment via instalments, an initial contribution of at least £1 will establish membership, but the individual will not meet the minimum shareholding requirement until the full amount has been paid.
A society offering shares by instalments needs to decide at what point the person acquires membership rights. Normally this will not be until the minimum shareholding has been purchased. Arrangements also have to be made to address the possibility that a purchaser might fail to maintain or complete all the instalments. A society would be within its rights to refuse membership and to deduct administrative charges from any refund, as long as these terms are clearly stated on the application form.
Societies must therefore determine, in advance, how to treat cases where investors do not complete their instalments. Possible approaches include:
- Allowing additional time to complete payments
- Waiving the minimum investment requirement and treating partial payments as withdrawable share capital
- Reclassifying incomplete payments as donations after a defined period
- Refunding payments in full or in part, with or without retaining a nominal membership share
Whichever approach is adopted, it must be clearly communicated in the share offer and applied consistently to ensure fairness and compliance with society Rules.
Cashflow and underwriting considerations
A key challenge associated with instalment payments is cashflow timing. Societies may not receive the full value of subscribed shares until several months after the close of the offer.
Consideration must be given to the overall funding target and timescales. Where a minimum capital raise is required (for example, to secure an asset) societies need to assess the risk of incomplete instalment payments and the implications for meeting that threshold. Similarly, any match funding arrangements may require confirmation of funds within a specific timeframe, which could affect the viability of instalment-based contributions.
To address this, some funders may be able to provide a form of underwriting finance. This could be an interest-free, repayable loan to cover the value of shares purchased via instalments. The loan could then be repaid progressively as investors complete their payments.
This mechanism functions as bridging finance, supporting societies during the critical post-offer period when capital is required but income streams may not yet be fully established. It enables societies to proceed with planned expenditure while maintaining inclusive investment options.
There may be other financial options that a society could consider instead of a bridging loan, subject to its own circumstances.
Making arrangements so that applicants can borrow money to pay for shares is not considered to be good practice, unless the liability is borne by someone other than the applicants.