Whitmuir Community Farm

 

Background

Whitmuir Community Farm is aiming to become Scotland’s first community owned farm.  The original intention was to raise £600,000 in order to buy 130 acres of organic farmland along with the farming business, stock and equipment and the necessary working capital to create a Living and Learning space. However, having so far raised around £170,000, the intention is now to manage the transition over a longer period of 3-5 years.

The farm is situated south of Edinburgh, and as well as the farm includes a farm shop and restaurant (owned and managed by a separate company, Whitmuir Organics Ltd.). It also hosts the Breadshare Bakery and Dancing Light Gallery and is home to the Black and Green biochar project.

As well as continuing to produce good food every day, the aim is that Whitmuir becomes a national resource on sustainable food and farming, with discovery trails, exhibits, educational opportunities and citizen science projects.  The farm is already hosting around 50 educational visits a year.

 

Plunkett support                                                                                                                                                                                                                                            

Whitmuir Community Farm approached Plunkett Foundation to support them to find a way through the legal obligations when selling shares to children over the age of five, and this case study intends to capture the learning that Plunkett engaged in, in order to support the venture.

 

Industrial & Provident Society

Whitmuir Community Farm (WCF) incorporated as an Industrial and Provident Society for the benefit of the community using Plunkett Foundation’s model rules on 28th December 2012 and its registered number with the FCA is 2764RS.  Incorporation is essential because it gives the community the legal structure to be able to trade and means that personal liability is limited to the value of a share.  It also allows the community to enter into contracts and own property.  In the case of Whitmuir, incorporation has allowed the community to enter immediately into contracts with the current owners for educational work prior to eventual purchase of the land and oversight of the farming 

business. Its status as a community benefit society has also allowed WCF to obtain grant funding for two part-time posts, with a plan to develop various trails throughout the farm.

An industrial and provident society is an organisation conducting an industry, business or trade, either for the benefit of its members (as a co-operative) or for the benefit of the community, and is registered under the Industrial and Provident Societies Act 1965.

The management group wanted a legal structure that was inclusive to all of the community, including children.  An IPS allows open and voluntary membership, 1 member 1 vote, with the interests of the business linked into community control.

The key characteristics of an IPS community benefit society are:

  • It must have a minimum of 3 members.
  • In the event of the winding up of the society, surplus net assets are not distributable amongst members but transferred to another common ownership enterprise or to a charity nominated by the members.
  • Voting control must be vested in the members equally, not in proportion to their financial interest in the society.
  • Interest paid on share and loan capital, if any, must not exceed a rate necessary to raise and retain sufficient capital to carry out the society’s objectives.
  • Membership must not be artificially restricted with the objective of increasing the value of members’ proprietary rights and interests.
  • Any trade profit should not be distributed but reinvested or used for payments for social or charitable purposes.
  • If the society in England and Wales meets the usual charity criteria it may apply to the Inland Revenue to be treated as an ‘exempt’ charity for taxation purposes which, if granted, will give the society full charitable status. It will not be granted a charity registration number. This does not apply in Scotland.

An IPS is the only legal structure that allows shares to be withdrawable and sold back to the community enterprise as trading conditions allow.

 

Plunkett Foundation Model Rules

The Plunkett Foundation can be used as the ‘promoting body’ to register a community owned business as an Industrial and Provident Society (IPS) for the Benefit of the Community.  This means that communities can use our FCA approved model rules (template governing document for an IPS) which have been specifically devised for community-owned enterprises. The advantages of this are a quick registration and a reduced registration fee.

 

Whitmuir’s share offer

The management team working on the prospectus for Whitmuir are very capable and include experienced co-op development worker Martin Meteyard as Secretary. Plunkett were asked by a member of the committee to investigate the sales of shares to children.

The community launched a share offer on 21st March 2013 and opted for shares to be sold to any person over the age of five. New IPS legislative changes effective from 8th January 2012 allow people 

aged 16 and under to become members of IPS societies and those 16 and over to stand for committees or boards.  With this being new legislation, Plunkett Foundation was asked to advise the community on the best way to manage this.

Whitmuir already had a number of children engaged in various activities on the farm along with their parents, and were inspired to allow young people to become shareholders after hearing about the Community of Raasay Retail Association (CORRA) on the Isle of Raasay, which was the first IPS to allow the sale of shares to children over the age of five.  The CORRA Chairperson has advised that 15% of shares were sold to children, and they have often been purchased by relatives living on the island.  The intention behind selling shares to children is to be fully inclusive and value the young people as well as the old, and to give them all a sense of ownership in the project to take over the local shop. 

Raasay (off Skye) is a small, fragile community, so it was considered even more important for everyone to feel part of what was happening on the island, and they welcomed young people over the age of 16 to be part of the management committee. Most of their young people tend to move away as they grow up, so another advantage of share membership is to encourage that link to the island to continue into the future.

Raasay do not allow children to purchase more than one share, and they cannot vote until they reach the age of 16.

In contrast, Whitmuir decided they wanted to allow young people holding a share to be able to vote alongside other members.  They felt it was important that young people learn about the democratic process at an early age and have a voice in the affairs of the farm. One young shareholder, for example, wants to put forward a motion at the AGM to add Highland cattle to the farm stock!

 

Plunkett’s findings

Co-operatives UK, in association with Cobbetts solicitors, produced a paper in 2011 on the ramifications of the changes to the law removing the minimum age for shareholders in an IPS and allowing members of the Board to be accepted from the age of 16.  The paper can be found at: http://www.uk.coop/documents/age-limits-industrial-and-provident-socities, and a spreadsheet showing their research into how other institutions approach age related issues, as well as a pdf version of the paper, are downloadable from that web link.

 

Plunkett’s recommendation is as follows:

If a Society wishes to admit child members, there are several issues that need to be fully addressed and well thought out. Societies should read the above documents carefully before specifying an age in their Rules, or before producing a share offer document and membership application forms. 

Age specification

Each Society, when registering, has the opportunity to specify in their Rules the minimum age of membership in that particular Society. If no age is specified in the Rules, then membership can theoretically start at birth.

In a public share offer, there is nothing in the Plunkett Rules that prohibits a different age limit being set for share purchase, or different conditions for shares being purchased by minors. 

Member benefits

Children once admitted as Members, unless the Society specifies otherwise, are entitled to normal member benefits, including the right to vote, hold shares, and receive interest.  It is therefore up to the Society to establish whether it wishes to overrule this, by maybe only allowing young people over the age of 16 to have voting rights or to create an associate or junior membership with different voting rights.  The Society might, for example, establish a different level of shareholding for a junior member and only grant full voting rights when they become ‘fully paid up’ members at 16 – as at Raasay.  Or they may decide to specify that only children who are related to a full adult Member can become a Member, to reduce complications with identification.

Share ownership by under 16’s

Share ownership by under-16s raises some issues. The Rules of the IPS lay down the minimum shareholding required as a condition of membership and, under the Rules, the member has to apply. When sums of money are involved, considerations such as trustee involvement, bank accounts and money-laundering identification processes would have to be considered.

Legal restrictions that prohibit under-16s issuing receipts mean that children under 16 theoretically would not be able to withdraw their shares, as they could not issue a receipt. Therefore a clause could possibly be added to a share offer document to specify that shareholders under 16 cannot withdraw their shares until they reach the age of 16 – which is what Whitmuir decided to do on advice from Plunkett.

If membership of under-16s is in the interests of inclusiveness rather than financial investment, it may be considered preferable to seek children as members only, and not as shareholders beyond one share. A Society could therefore differentiate between membership and further shareholding by stipulating clearly that the first share is the membership share, and then further (withdrawable) shares are purchased over and above that.

Shares as gifts to under-16s

Shares can be given as gifts. It may be better to deal with these separately to a main share offer. One potentially best practice approach for shares as gifts could be to:

  • Create an alternative application form to give shares as a present.
  • Write to anyone that has been given shares, asking them to sign saying they

accept the terms of the share offer.

  • Keep the money in a holding account until the person has accepted the terms.

Interest on shares

If interest is to be paid on shares, then unless a minor holds a bank account in their own name, the interest would have to be paid via a trustee, with an identification process necessary. According to the research by Co-operatives UK, the industry norm for children to begin holding investment accounts is aged between nine and eleven. However, Interest can also be credited to a share account, which may be recommended as an easier option.

Money laundering identity verification & data protection

In the instance of an application form for the purchase of shares it might be prudent to add such wording as: The data provided by you on this form will be stored within a computerised database. This data will only be used for [name of Society’s] purposes and will not be disclosed to a third party. It is a term of this offer that to ensure compliance with the Money Laundering Regulations, [Name of Society] may at its absolute discretion require verification of identity from any person seeking to invest.

Membership of children – tracking age

In the case of a Society with an under-16 age limit, it would be useful to add to any

member application form a space for date of birth (if under 16). This would give

the Society a way to interrogate their data over the years as regards the take-up

and average age of child membership, and would also indicate when the shares can be withdrawn or (as in the case of Raasay) when additional shares need to be purchased in order to become a ‘fully paid up’ member.

 

Conclusion on selling shares to children

Plunkett found that there appears to be a degree of flexibility of interpretation over selling shares to children, and there appear to be many discrepancies of age limits in business and financial legislation.  As well as benefiting from the opportunity to participate and learn about issues that affect them, children can also benefit from membership by receiving interest on their shares, but financial regulations could make it difficult for children to withdraw their shares. A community group needs to make a careful decision over whether to allow children to hold multiple shares, or whether they should just have a share that would entitle them to become a member.

This study has been made without legal advice and is intended merely as a pointer to the issues that are likely to arise due to the recent change in legislation to allow under-16s to join IPS’s as members. It is not intended to do anything more than indicate to prospective Societies the sorts of decisions they may need to make when allowing children to become members or invest in a Community Benefit Society.

 

How this has helped Whitmuir

Whitmuir have produced an excellent prospectus which is available at http://whitmuircommunityfarm.org/buyashare.htm  In this prospectus it is clear that shares to children cannot be withdrawn prior to a child reaching the age of 16. On the same web-link, you can apply for shares and the application form has been split into two sections.  Section A is for an individual who wishes to buy shares and section B is for those purchasing shares for a child or as a gift.  The application includes a request for a date of birth and an explanation of data protection and money laundering.  Both the prospectus and application can be used as examples of best practice.

Any questions or comments regarding this case study or the activities of the farm can be made to either Donna Smith at Plunkett Foundation on 01993 814377 or donna.smith@plunkett.co.uk  or  info@whitmuircommunityfarm.org

NB: This case study has been used with the permission of the Plunkett Foundation.