Brechfa Community Trust Limited

A Draft Proposal to establish

An Industrial and Provident Society for Community Benefit

Register No

Prospectus

June 2012

Summary

We are seeking investors who wish to become members of a community co-operative that plans to buy the Forest Arms in Brechfa, Carmarthenshire.

Currently there are proposals to reopen it as a pub with microbrewery, a bunkhouse and caf/ restaurant with space to display and sell local crafts etc.

It will benefit both residents and visitors to the area supporting other local businesses and tourist initiatives. It is our intention that the pub will work closely with and in support of the other community and commercial facilities in the area, in particular the village halls and community store.

It may also be possible to provide some additional space for meetings, and workspace for small rural start up businesses.

It will be a profitable business and represents a fair investment opportunity offering modest returns to its shareholders.

If you make an investment you will become a member of Brechfa Development Trust Ltd. We will be an Industrial and Provident Society for Community Benefit, a co-operative, run for the benefit of the local community. You will have a say in how the business is run and in who runs it.

You will be a co-owner of a traditional stone building, in a beautiful setting.

Members are asked to invest a minimum of 250. Each member will have an equal say in the enterprise. The initial directors that have formed the Society are accountable to the membership and will, be elected by them at the first Annual General Meeting.

Members will receive a regular newsletter and be entitled to attend the Annual General Meeting and other general meetings that may be called from time to time.

We aim to raise 80,000 from members. This sum may be supplemented by grant aid and/or loans that we expect to receive this will be used to purchase the building.

It is our intention to raise the additional monies for renovation and equipping the businesses from grant funding.

The Society may agree a lease/s. with various tenants who will operate from our premises. Their terms will reflect the needs of the cooperative enterprise to be profitable, balanced against their development potential.

The rental income will provide a return to our member/investors. We firmly believe that the business will be profitable, but if it is not, the Society owns a valuable asset the building and land associated with it - which can be sold in order to return funds to investors. Your investment is in the building and land - the bricks and mortar, not the licensed business or other commercial activities.

This is a great opportunity to invest in a worthwhile community enterprise that will provide a valuable service to its members and users.

Brechfa is one of the communities benefiting from the Cambrian Mountain Initiative, a project to help develop strong sustainable communities linked to the quality and attractiveness of the landscape.

Carmarthenshire County Council has identified that Brechfa Forest and Llanllwni Mountain support 105 tourism accommodation providers, and has a value to the local economy of 18 million to 22 million a year. The community is being supported to develop plans to increase the promotion of Brechfa Forest and Llanllwni Mountain as tourist attractions. The local tourism cluster association has recently received grants to promote trails linking the communities and businesses providing services to day trippers and tourists around the forest and mountain.

Description of Businesses

The Forest Arms was the only pub in Brechfa. The pub closed in 2006 and has remained unoccupied since.

We have been supported by Carmarthenshire Association of Voluntary Services (CAVS) to develop a community survey to assess the potential range of uses of the building and in gathering information on sources of funds to purchase and renovate the property. Unfortunately this will not now be completed until later in the summer.

Our communities plans to purchase the property.

With the support of CAVS we have launched a community share offer to raise the funds to buy the freehold of the Forest Arms. CAVS has already offered to assist us in promoting the share offer.

We have the support of a number of experts from the hospitality and brewing industries as well as the 'Pub is the Hub' initiative to develop the business plans and designs for the property.

It is not practical for us to apply for grants to purchase the property because of the timescales. Additionally, by raising the funds to purchase the property via a share offer, we will also be demonstrating to grant organisations the support of the community for the project.

If the community is unsuccessful in purchasing the property, the rules of the share offer would enable us to refund in full all the money raised.

Renovation.

We estimate that it will cost 150-200,000 to renovate, convert and equip the building. However, it is difficult to exactly estimate the costs at this stage before a full scheme has been designed. There may also be unexpected problems discovered once work starts.

There is a considerable range of support available from grant funding sources for community enterprises which provide both employment opportunities and services vital to build a strong community. We have already identified some potential sources of grant funding for the renovation of the building.

Once the community own the Forest Arms we will then be supported by the CAVS to apply for grants to fund the renovation of the property. It normally takes at least 6 months to successfully apply for such grants.

In parallel with applying for grants we will be working with our consulting experts on the designs for the property and the business.

While the property is not listed, it is of a traditional style of construction. The community association has been in informal discussions with an organisation which provides training on traditional building techniques on using the renovation of the building as a project for the supervised students on this course. This could reduce the renovation costs significantly as well as providing some opportunities for local people to be involved in the renovation and learn new skills.

Members of the community including local builders have already offered to help with the renovation work, but may extend the renovation period.

Re-opening

We estimate that it will take at least 2 years from purchase to the completion of the renovation. However it may be possible to phase renovation work in stages, so bringing forward the date from which the business will start to generate an income.

Industrial and Provident Society Structure

We will be establishing a co-operative that is called an IPS for Community Benefit. We have been advised by Co-ops UK on the registration of the Society with the Financial Services Authority and we have adapted model rules provided by Co-ops UK to draw up our own rules. The Society, known as Brechfa Community Trust Ltd, will be a separate legal entity. This has been done because we need to be able to establish a co-operative in which members will become member shareholders.

We believe that there is sufficient interest from within the community association and surrounding area and from other supporters with connections to Brechfa to recruit other shareholder members to join the Society. The IPS structure allows any person who buys one or more shares to become a member of the Society. Each member has only one vote.

Each share costs 250. We have decided that a minimum investment would be 1 share. However, it is possible to invest more than the minimum and our publicity will encourage members to do so. No shareholder can invest more than 20,000.

In order to give the Society a chance to launch the business we will require investors to commit to keep their investment in the Society for at least the first two years before they can withdraw it. After that they will be required to give three months notice of their intention to withdraw funds. The Society rules will give the directors the power to refuse a request to withdraw funds if it would endanger the business. It is our very firm intention not to use these powers unless absolutely necessary.

We want investors to know that their money is available if and when they need it. Once we have reached our target there will be a waiting list for new investors.

The Societies intention is that it will pay interest to its shareholders at least as good as they are likely to receive from an ordinary bank deposit account and investors can withdraw their money when they wish to, there will be some restrictions on how and when this can be done.

Whilst we anticipate that the business will be profitable eventually.

The tenants rent paid to the Society will be sufficient for the Society to pay a competitive level of interest to its members, the Society will not be seeking to pay any interest until the end of the second year.

One of the major advantages for shareholders investing in this type of business is the highly beneficial tax arrangements if shareholders hold their shares for a minimum of 3 years.

The shares that members buy are redeemable in the way set out above, but they are not transferable (i.e. members cannot sell them to anyone else). This arrangement allows the Society to be exempt from the Financial Services and Markets Act for Society share issues.

Whilst we firmly believe that the business will be profitable and that the ownership of the asset, the land and buildings, provides members with a high level of security, it is important for members to understand that there is a potential risk that the business may fail and land values may fall. If this were to occur the value of shares in the Society could reduce.

A board of directors comprising up to nine members will manage the Society. They will be accountable to the membership and will report to them via a newsletter and an AGM. The first of which will be held within 6 weeks of the societies registration.

After the first year, one third of the directors will stand down each year and may be re-elected or replaced by new directors.

The Society may lease sections of the building to a tenants or tenants, who will run the building either as a whole or as separate enterprises. They will pay rent to the Society.

The board will set the broad policy direction for the business and agree key targets with the tenant/s, beyond that, however, the tenant/s will be left to manage the business as they see fit.

The board does not intend to interfere in the day to day running of the business or attempt to micro-manage them.

We are currently researching the best business model for collaboration between the various uses that have so far been proposed and will come forward with a business plan in due course.

The Society will pay a competitive level of interest to the membership that will be obtained from the secure income of rent paid by the tenant/s.

Interest is paid gross and is taxable. It is the members responsibility to declare any such earnings to HMRC if applicable.

The Societys rules determine that any surplus made by the Society after it has paid dividends to its shareholders must either be reinvested in the business or used for the benefit of the local community or for another charitable or community purpose.

Directors and members are forbidden from benefiting in any other way from the activities of the Society. It is our intention that the property will continue to operate a public house and community business hub for the benefit of the community for the foreseeable future.

However, should the membership choose, to dispose of the property in the future, any surpluses that may arise after all the shareholders have been paid back the amount they invested must be used for a charitable purpose.

This would not prevent the directors choosing to reflect the fact that the enterprise has made a profitable sale in the level of dividend paid to the members in the final year of operation, providing that this dividend is reasonable.

This proposal will not be regulated by the Financial Services and Markets Act 2000 because the shares in the co-operative are not securities for the purpose of those regulations. If the business fails there is no right of complaint to the Financial Ombudsman or the Financial Services Compensation Scheme.

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