The Community Woodlands Association (CWA) commissioned Community Enterprise to undertake a piece of research into community shares and the legal issues around utilising that investment route.  The CWA has become aware that the Big Lottery strand - Growing Community Assets - has not been an effective way of securing the ownership of land based community assets.  Alternative sources of funding need to be found.  Our report investigated the appropriateness and fit of using share issues to raise capital for land purchase. 

Initial research was undertaken to establish whether there is an existing model that can easily be adapted to fit the needs outlined above. This included an analysis of existing community equity investment models, the use of a small number of case studies, a consideration of debentures and an evaluation of different legal structures.

The following is a brief summary of our conclusions:

• Grants, gifts and donations remain the cheapest form of finance but changes to the funding landscape are forcing groups to seek alternative sources of financing. Loans and bond finance is available from institutions and (to a lesser extent) individuals, but are a financial liability.

• Equity investment through community shares is more flexible, longer term, and connects the investor to the enterprise, sharing in the risks and rewards. The attraction of in-kind benefits as well as, or more likely, instead of, financial returns may be attractive to community woodlands.

• Goodwill can be called on, as well as delays in paying dividends, to ensure that income is generated by the issue of shares with minimum and, in some cases, no requirement to pay out interest or capital to investors.

• Community share issues generally raise only a small proportion of the capital required but the demonstration of public support raises the profile of the venture and helps to unlock other sources of funding, both grants and loans.  Though returns can be in-kind, there is a legal right for the investor to remove capital by selling shares so this becomes a long term liability on the company.

• The community benefit society is the model used for most community share issues. The updated legislation is straightforward and there seems no good reason why this model should not be suitable for community woodland purposes.  The use of withdrawable shares is exempt from both FSA and money laundering regulations which makes the process simple and avoids the costs of professional share issue.

• The cap on interest payments fits with the social purposes espoused by most investors in community shares. The use of bonds or debentures can be used to raise additional capital from members on terms that allow modest returns.