A guide to third sector trading - WCVA

It’s an idea, but is it business? A guide to third sector trading
1: Getting
started
2: First steps 3: Business
planning
4: Legal and
governance
5: Funding
and
resourcing
6: Financial
controls
7: Managing
growth
8: Management
and
governance
9: Social
enterprise
10: Sources
of support
5.4 Raising money with shares and bonds
What are shares and bonds? Shares and bonds offer a way for
third sector trading companies and industrial and provident
societies to raise money from supporters to fund their enterprises.
The legalities are complex, and it is possible only to give a brief
introduction here. Guidance from a specialist is essential.
In simple terms:
• A share issue is an offer of shares by a company or an industrial
and provident society (IPS). They are investments in a company
which might pay dividends to shareholders, but in third sector
enterprises often do not.
• Bond issues are offers to several people to lend money to an
organisation on similar terms for several years. It is long-term
debt capital.
What types of company? Depending on the type of company
involved, there are restrictions on the sale of shares to the public.
There are fewer limitations on selling bonds.
• The Companies Acts prevent private companies limited by
shares (including community interest companies limited by
shares) from offering shares to the public. ‘The public’ in this
context is understood to mean more than 50 people.
• Only public companies limited by shares (plcs), which
require a minimum of £50,000 in share capital, can offer
shares to the public.
• Companies limited by guarantee (including Community Interest
Companies) can offer bonds to the public.
• The Industrial and Provident Societies Acts permit co-operative
societies (‘for-profit’ organisations) and structures known as
‘benefit of the community societies’ (‘not-for-profit’ organisations)
to offer shares or bonds to the public. For this reason most share
issues are carries out by co-operatives under IPS rules.
The benefits:
• A successful share issue can raise significant sums for
popular projects. The Centre for Alternative Technology near
Machynlleth raised £1m in 1989, and there are examples of
exceptional community based projects in England which have
raised up to £200,000.
• Share and bond issues can be a relatively inexpensive way
of raising capital because they may not pay any dividends or
interest in early years, and under some circumstances the value
of share will not have to be repaid.
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