Community bonds are debt securities representing both debt and capital which can only be issued by a non-profit organization. They are sold to investors for a specific amount and time period and may or may not bear interest.

Preferred shares can only be issued by a cooperative and are different from members’ shares because they can be sold to non-members and do not give voting privileges. Sold at a price determined by the cooperative, they are part of the cooperative’s assets and considered equity, and may or may not bear interest.

Community bonds have a prospectus exemption from the Financial Markets Authority (AMF, Autorité des marchés financiers), which means that they are not regulated by the AMF. They may be promoted, but paid brokerage is prohibited, so the transaction must take place directly between the issuing enterprise and the investors.

Community bonds and preferred shares must normally be repaid at maturity. They may be repayable before maturity, redeemable or transferable depending on the issue terms.  Investors can also choose to reinvest at the end of the term or donate their bonds.

Community bonds and preferred shares are accessible to any type of investor, whether a legal entity or natural person, regardless of if they are a member of the issuing non-profit or cooperative. The majority of buyers, however, are individuals, users and members of the issuing organization’s network who believe in the project.

Crowdfunding makes it possible to obtain donations, which are not refundable to donors and can be the subject of a receipt for tax purposes. Community bonds are an investment in the form of securities which must be repaid by the issuing enterprise at maturity and according to the terms listed on the certificate.

Community bonds differ from conventional loans because they are not only a liability for the organization but also part of its capital. It can be thought of as quasi-equity, because it is a more flexible and long-term form of debt and generally unsecured. However, it is still a repayable debt and not a grant.

It is a flexible tool whose conditions (nominal value, rate, maturity, etc.) are chosen by the issuing enterprise. Less expensive than a conventional loan, it also allows an enterprise to develop local roots in order to mobilize the community and confirm the project’s viability. Community capital financing also helps to diversify a project’s financial package and to mobilize new capital.

It is strongly recommended to be accompanied by a technical expert and to obtain legal advice to issue in full compliance in order to avoid the risk of having the exemption withdrawn or having to repay securities that are not legally valid.

Assembling the file can take three to six months depending on the project’s maturity. As the organizational documents (letters patent, regulations) and the project’s business plan already exist, the support mainly aims to develop satisfactory issue terms and to legally validate the investor kit.