From what we had discovered, the solution that we came up with (and there certainly are many others) was to have a charitable entity hold the shares.
This newly created charity is the perfect shareholder. The charity says, I don’t care how much money you give to us in dividends, we didn’t even exist last year and we didn’t invest any money, you just gave us the shares. So whether its $1, $100 or $1mill, we’re happy.
If we don’t get paid a dividend in any year, we know that the business is not being greedy by keeping the extra cash. So they are the perfect long term thinking shareholder.
They say, keep as much as you need to reward your staff and grow the business and even if we don’t get anything at all for the next 10 years, we know you’re only doing that so that when we do get a dividend it will be the result of a highly engaged, very productive and highly profitable workforce and the dividend payments will be larger and more reliable.
The dividend payments should reflect the health of the business and the excess capital being generated rather than the demands of the shareholder to get paid. We have removed the problem of the short term, economically motivated shareholder.
Now how to get capital into the company without the providers of the capital being shareholders (as is always the case in a start-up)? In our case, the capital has been provided as a loan. This was a philanthropic act by investors who saw a longer term goal of a corporate entity existing for a social purpose. The loans were clearly not based on economic principles and the interest rates were just interbank rates. Let’s say we needed $1mill to start the business, that $1mill was provided as a loan at something like 1% interest. The first $1mill in profit pays back the loan and the company now has generated its own working capital. The loans have been repaid.
We are left with an actual, incorporated business where no private capital has been provided (just loans which are being paid back) and none of the shareholders having an economic interest in how the business is run because they (the charity) did not contribute any money for their shareholding in the business. The shares were given to them. Fabulous! The removal of both economically motivated shareholders and risk capital providers.
How does this look? What are we left with?
We are left with a company that really cares about their employees and customers because there are no other assets to care about and where the fruits of success, the profits, don’t go to line the pockets of just a few founders or emotionally removed investors which creates terrible wealth distortions, but rather go directly back into the community.
What does this mean for the team at VivCourt?