Share Issues

Equity finance is risk capital invested in a business for the medium to long term in return for a share of the ownership and sometimes an element of involvement in the operation of the business/organisation. The rate of financial return payable to investors depends on the underlying performance of the project: some investors may require higher returns for this uncertainty. Alternatively other investors may be looking for social returns which can be demonstrated by measuring the impact on a social problem that is achieved by the business.

Equity can be raised through a public offer to individual or institutional investors, to invest in a company. The process of raising money publicly is understandably highly regulated to protect potential investors. As a consequence this route is not usually available to organisations unless they have a successful track record and can afford the substantial transaction costs involved.

One institutional form - a Cooperative and Community Benefit Society, is exempted from the legislation governing public offering and can in consequence subject to following certain rules and principles raise money publically at a lower cost. The exemption is granted due to the community benefit of the underlying project and the investors should not therefore be investing primarily for financial return. All investors must become members of the Society and which must be governed on one member one vote rules. An increasing number of people have been using this “Community Shares” route to raise equity finance. This has sometimes helped lever in significant additional grant and loan funding.

To see a list of community share issues that are being developed or have been undertaken in Wales click here.
 

Related documents