Community Shares – What are they?
Blues Trust is considering how it might react to possible scenarios in the uncertain future of Birmingham City F C.
Blues Trust already has a small minority shareholding in the Club and it would consider buying more shares if that ever becomes possible and in the event that funds become available. Other supporters’ trusts and clubs have raised money to buy shares in their Club by the Trust issuing Community Shares.
A Club can command a place in the community connecting people like few other things in modern day society, whether that’s through watching, volunteering, participating or just providing a sense of identity.
Community Shares offer an opportunity to further that connection, between individual and club, by enabling individuals to invest in it in a meaningful way.
What’s more there is the possibility of huge benefits to your Club by raising money that can change the Club forever, such as enabling the community to collectively buy the Club or a share in it.
The guidance provided by Supporters Direct introduces a relatively new approach for Clubs to raise money, explaining why it believes it is the perfect match and how Community Shares fit with the traditional methods of raising money that Clubs are more familiar with.
Some Clubs are already seeing the benefits and the case study below describes the success of Pompey Supporters Trust.
Is it time that Blues Trust considers how it will fund its aspirations?
- Community Shares are a means to raise finance by offering shares in a co-operative legal form, most commonly a form known as a Community Benefit Society (CBS). Blues Trust is a registered society under the Co-operative and Community Benefit Societies Act 2014.
- Shares in a CBS are different to ‘normal’ shares in companies. CBS shares don’t go up in value and are unlikely to go down, and don’t give extra voting rights to bigger investors.
- Community shares can, under certain circumstances be withdrawn, with the CBS buying back the shares for the original price that they were bought for, thereby offering the individual investor an exit route. For these reasons, the shares are usually called “withdrawable shares” to distinguish them from ordinary shares in a company.
- A CBS can pay a small amount of interest to shareholders, but it is up to the Society to decide whether it can afford to pay interest, based on its performance.
- There is a limit to the number of community shares an individual can hold in any one CBS, currently set at £20,000.
- Organisations and enterprises can also invest and buy shares in the CBS but they too only get one vote, regardless of how much they invest.
Blues Trust is set up as a registered society under the Co-operative and Community Benefit Societies Act 2014 and has the capacity to issue Withdrawable Shares.
- As the name suggests a CBS exists for the broader benefit of the community, in our case a supporters trust, so it is possible to offer community shares without the regulatory burden and cost that a similar offer would involve if your Club were a Limited Company.
- A CBS is a type of Co-operative which is registered with the Financial Conduct Authority. People are invited to join as members paying an annual membership fee, and each person receives the same vote. The membership decides who they want to represent them on the Board, with the Board reporting back on their progress. The assets are held collectively by the members of the CBS, and by incorporating to become a legal entity any liability to individuals is fixed to £1 for each member or the value of their investment if they have bought community shares. If a Club isn’t incorporated these liabilities will rest with individuals.
- Any profit a CBS makes must be reinvested, and there are protections written into the rules to stop the wealth of the CBS being distributed to individuals. Due to the nature of CBS’ existing to benefit a community of people rather than an individual, a CBS enjoys exemptions in regulation that may affect Companies, for example it is much easier and more cost effective to offer shares to the public in a CBS to raise money.
Many Clubs that are incorporated as Companies have sold shares to raise capital. However, by law, a private limited company cannot make a public offer, so the shares are usually bought by a handful of wealthier supporters, who end up owning and controlling the majority of the shares. Some clubs have also sold lots of small shareholdings to members or supporters, but it is usually very difficult to resell these small shareholdings, making them more like a donation than an investment.
Community shares are far more flexible and patient form of equity. The Trust has the power to decide when it can afford to pay interest on community shares and when it can allow members to withdraw some or all of their share capital.
Using Community Shares is a great way for a community to purchase a Club, be that by providing a planned exit route for an existing owner or to take over a club in crisis.
Portsmouth FC Portsmouth Football Club is now majority owned by the community with Community Shares being utilised to raise more than £2 million to purchase a 60% stake in shares in the Private Company Portsmouth Community Football Club Limited, which are held collectively by Pompey Supporters Trust (PST).
PST surveyed 6,000+ supporters establishing that Pompey supporters wanted to be formally involved in any new ownership structure, and were willing to invest money in a credible and financially sustainable community buy out of the club. They followed the survey with a pre-share offer asking for deposits of £100 to test the appetite of the community, which paved the way for a full community share offer.
More than 2,000 individuals have now invested the minimum £1,000 or more in the scheme, a figure which was set at an unusually high level because of the need to raise a large amount of money quickly. To help with the speed of the deal they partnered with a local credit union who were able to offer individuals the chance to borrow money to join the scheme. This show of support helped attract other finance – approximately £1.5 million from individuals willing to part with £50k or more known as the Presidents who hold a minority shareholding, a short term loan from Portsmouth City Council of £1.5 million and a loan of £2.75 million put together by PST from a local property developer, secured against the future ownership of the stadium.
The defining features of a CBS are that it:
- Has objects that its purpose is to benefit its community.
- Is based on one member one vote.
- Has a membership that is open to anyone to join.
- Is registered with and regulated by the Financial Conduct Authority mutual register.
- Is non-profit distributing.
- Allows for a ‘statutory asset lock’ which means a club’s assets cannot be sold for private (members’) gain.
Community shares are different to normal shares in that they:
- Operate under the one-member-one-vote principle, rather than one-share-one-vote – no matter how many shares you own you have just one vote.
- Prioritise the delivery of community benefit over financial return.
- Limit interest payments to that ‘sufficient to attract and retain the investment’.
- Cannot be traded or transferred, but are withdrawable, providing the member with an exit route if they need to sell their shares.
- Are not subject to onerous and costly regulation that applies to shares in companies. Supporters’ trusts and clubs that are structured as CBS’s, and are planning to raise equity finance, thus have two forms of share:
- The membership share, which is not for capital purposes and has a nominal value (usually £1). This is neither transferable nor withdrawable and it expires if and when a member resigns or fails to pay their annual subscription. The membership share has full voting rights.
- Withdrawable shares (only available to members) carry no voting rights, but do attract discretionary interest payments, and are withdrawable (wherein the value of share is paid back by the CBS), subject to conditions and at the discretion of the society. This arrangement therefore allows clubs and supporters’ trusts to maintain a one-member-one-vote membership structure, whilst raising additional capital from members. Raising money in this way has become increasingly popular.
All the above information has been extracted from booklets provided by Supporters Direct. You can read the booklets from the following links:
|Community Shares Guidance 2013/14||http://www.supporters-direct.org/wp-content/uploads/2013/12/Community_Shares_Guidance_web_pomp.pdf|
|Supporter Share Ownership (Full Paper)||http://www.supporters-direct.org/wp-content/uploads/2013/11/Supporter_Share_Ownership.pdf|
|Supporter Share Ownership (Summary)||http://www.supporters-direct.org/wp-content/uploads/2013/11/Supporter-Share-Ownership-Summary.pdf|