How to set up a community benefit society and who can help

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Julia Patrick

Last month we looked at some of the particular features of community benefit societies – how they work in practice, and how forming a community benefit society affects things like shares and shareholder returns.

This month it’s all about the practicalities of setting up a community benefit society, so you can get going with your share offer and project!

where to start

There are two main steps you need to take: firstly, agree your governing document, often called the “rules”; and secondly, apply to the FSA for registration. A common and easy way for community benefit societies to set up seems to be through a “sponsoring” body. They will provide you with a set of model rules, and will handle the registration process with the FSA.

From talking to other community benefit societies, as far as I am aware there are currently two sponsoring bodies that provide this service for community benefit societies, Co-operatives UK (Co-ops UK) and Wessex Community Assets (Wessex CA).

At Oxford North Community Renewables (ONCORE) we decided to go with Wessex Community Assets because they were charging slightly less and because we preferred their rules. But I have heard other community groups say they prefer the Co-ops’ model rules, so it’s probably best to look at both options and decide for yourselves.

The alternatives for us were to try and create our own set of rules – with the risk that we ended up with a poorly drafted constitution and/or that our application was rejected by the FSA – or to pay lawyers to draft rules for us, which would have cost much more. This brings us neatly
onto …

the costs

Wessex Community Assets charge about £600 (inc. VAT) for the standard model rules with minimal changes, and Co-ops UK (I understand) about £800 (inc. VAT).

the “rules”

Co-ops UK and Wessex Community Assets both provide slightly different model rules. For a useful comparison of the different rules, have a look at Appendix 1 of the Practitioner’s Guide to Governance & Offer Documents. This lists all the relevant FSA requirements and compares the key features of the different model rules. Since your rules will dictate how you run your business, it is worth having a read-through both model rules, to see which you prefer. You may like the overall feel of one set of rules over another, or your preference may be about some particular provision in one set of model rules. For example, the Wessex Community Asset rules allow for more than one class of share, with different risk and return profiles, and there are specific provisions about holding shares on behalf of children.

changing the model rules and registration

At ONCORE, even though we went through Wessex Community Assets, it was important for us to review the model rules carefully and make certain changes we felt would be more suitable to how we wanted to run the enterprise. For example, we changed the quorum for board meetings from two to four. We also sought separate legal advice on a couple of points, such as financial promotion and the way this was reflected in the rules. And we thought carefully about our society’s objectives, which would be enshrined in the rules. We discussed and negotiated all the changes with Wessex Community Assets, and they then prepared the paperwork. Making these extra changes cost around £100. As part of the application form to the FSA, we had to have three founder members and a company secretary.

We were registered in less than two weeks following our application. The founding members then appointed the board and secretary at their first meeting following registration.

Once you’re registered as a community benefit society, there are a few more boring bits and pieces you will probably want to sort out.

setting up a bank account

First, you may want to apply for a bank account as soon as possible, so that you can receive money from shareholders when you launch your share offer and pay any invoices. For ONCORE, we applied to open two accounts at the Co-op Bank, a “Community Directplus” current account, and a “Business Select” deposit account. We used the latter to hold monies paid by shareholders separately until we knew we had raised all the necessary money and that the solar PV installation on Cherwell School was definitely going ahead. It took about three weeks for our application to be processed.

VAT registration

Secondly, there’s VAT registration: societies can apply to be registered for VAT like any company. As you are likely to be paying VAT, especially on the installation, you should consider applying for VAT registration in order to be able to recover any VAT paid. If you have any questions about the application, it’s worth trying to phone HMRC, who we found very helpful. You can also find out about applying for VAT registration on HMRC’s website.

enterprise investment scheme relief

Finally, you may want to consider applying for advance assurance from HMRC that your scheme qualifies for Enterprise Investment Scheme Relief (EIS). Enterprise Investment Relief (EIS) currently offers 30% income tax relief to new equity investors in small firms, including community benefit societies. Shareholders have to invest at least £500 and hold shares for at least three years to qualify for EIS. This means that 30% of the amount invested can be offset against income tax liabilities in the year the investment is made. Information on how to apply for EIS advance assurance is available on HMRC’s website. Moreover, in the 2011 budget the Government announced a new relief, “Seed Enterprise Investment Relief” (SEIS), which gives investors 50% tax relief against income tax. This is not yet in force but is expected to apply from the 2012/2013 tax year. For more information on SEIS, check out the HM Treasury website.

At ONCORE, we received some pro bono advice on EIS from the accountancy/consulting outfit, BDO (via Carbon Leapfrog). Drawing on a standard letter prepared by BDO, we applied for EIS advance assurance with quite a detailed cover letter. We applied on 3 June 2011 and received notification of advance assurance on 21 June 2011.

other advice and support

Other organisations that offer advice and support on setting up community benefit societies include Baker Brown and the Co-operative Enterprise Hub.

Once you’re registered, you can get on with the more exciting business of raising money for your project. So log on again next month, when we will look at how to set up a community share offer.

Julia Patrick

 

 

 

 

 

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