CIC Association

Serving Community Enterprise

Greetings to all.  I’m looking forward to learning, participating and sharing what I learn.  I have started and managed a CLG but have no experience with shares.  May I please ask a couple of questions? 

 

Equity Valuations for Private Company

 

I’m working with a senior Cohousing startup community.  We want a company structure where we can: 

(1)  Pool our money and purchase land. All 15 or so prospective homeowners will have equal shares.   

(2) We want to protect our shared equity so that our heirs may be paid market value at our time of death. (TOD) 

(3)  Each shareholder will be given a 99 or 999 year lease on which to self-finance and self-eco-build a dwelling.  At TOD we want the lease to be transferred to the home purchaser – all this according to stipulations in the Articles. 

 

I don’t anticipate a problem with (1)

 

Q1:  Is proposition (2) possible with a CIC? 

 

I’m pretty certain (3) that a lease can be transferred according to the articles and that the dwelling can be sold privately again, according to company acceptance. 

 

Q2:  Share equity will consist of only –land and –community building.  (1) We want equity valuation to be determined by the total market value this equity at a specific date divided by the number of shares.  (2)  We wish to prevent share value dilution by prohibiting additional share creation.  Can we achieve this with a CIC?

 

Thank you so much in advance for any suggestions. 

Views: 79

Replies to This Discussion

Very good questions!

I find myself thinking of the caveats needed to try and do the ifs, buts and maybes the justice they deserve so my answers, as usual have the first caveat that it is recommended you seek professional legal advice. Especially so with questions like these as when you further consider alternative structures it gets complicated.

Q1. Yes in theory, but whether you would get paid market value is another matter. Who would pay? Wouldnt you just have the shares transfer ownership to the heir?

Why do you want to be a CIC? As opposed a Charity? Or Ltd company? 

Yes, you can buy the land as you describe, all assets will be under the asset lock and your share value will be relative to the full/subjective metrics that are applied depending on whatever agreed process is agreed. Subjective!

I think it complicated to try and put a valuation process in place as you describe. You can protect yourself from dilution as per normal Ltds......in most regards for most of the time simply consider the CIC Share exactly the same as a LTD Share for technical purposes (aside the caps)

Is it anticipated that everyone invests the same amount? Has an equal vote? 

John

Reply by John Mulkerrin 4 hours ago

 

Very good questions!

 

I find myself thinking of the caveats needed to try and do the ifs, buts and maybes the justice they deserve so my answers, as usual have the first caveat that it is recommended you seek professional legal advice. Especially so with questions like these as when you further consider alternative structures it gets complicated.

 

Q1. Yes in theory, but whether you would get paid market value is another matter. Who would pay? Wouldnt you just have the shares transfer ownership to the heir?

 ***Sky

***Yes, of course.  I didn’t state the question accurately.***

 

 

Why do you want to be a CIC? As opposed a Charity? Or Ltd company?

 

***I thought a company structure oriented to community interest that could issue shares would be less complicated than the usual CLG where the land would be owned by the company.  I thought a CLG would have problems passing on equity when the householder(s) died.***

 

***In regards to a charity, we will probably never receive enough income to apply for charitable status.***

 

 

Yes, you can buy the land as you describe, all assets will be under the asset lock and your share value will be relative to the full/subjective metrics that are applied depending on whatever agreed process is agreed. Subjective!

 

***I think I understand. The land and common house the company owns are assets.  These are asset locked.  However, shares are considered equity and thus neither an asset nor a liability.*** 

 

 

I think it complicated to try and put a valuation process in place as you describe. You can protect yourself from dilution as per normal Ltds......in most regards for most of the time simply consider the CIC Share exactly the same as a LTD Share for technical purposes (aside the caps)

 

***I understand.  I’ll study this topic.***

 

 

Is it anticipated that everyone invests the same amount? Has an equal vote?

John

 

***Yes to both questions. I will suggest that we hold off on company formation and land purchase until there are enough householders who will invest enough to pay for the land and the common house. Any further finances can come from debentures sold to householders as and when needed.***

 

***Thank you so very much for getting back to me so promptly and providing such helpful answers.*** 

 

Best wishes,

 

Sky

Hi Sky!

You might want to have a look at the ‘Guide to legal structures’ published by Wrigleys solicitors, which comes down against a CIC for cohousing. 

At our age, I would suggest that getting a new cohousing group up and running to the point where you might want to be looking at inheritance issues is going to be a near impossibility. By the time that you have found a piece of land, and secured planning approval, you will have lost members along the way, and will likely need to start the process over again. 

My friends and I have secured a property in France, where land is considerably cheaper, and have commenced building, but, even so, we are looking at willing our investment back to the society, simply to try and ensure that the society gets off the ground. We consider that we have already given our children the best start in life that we can, and we are instead looking to leave a legacy. 

However, in answer to your question, from my own studies, it appears that the majority of cohousing groups in the UK consider the long lease in a particular parcel of land/property to be the asset, which can be realised on the open market in the normal manner, whilst the shares in the company which owns the freehold are simply included in the package as part of any sale as a ‘bonus’. 

Best wishes, 

Martin

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