PR: Francisca Pretorius Joins Firm Full Time

FOR IMMEDIATE RELEASE

September 20, 2018

CONTACT:

Jason R. Wiener

720.445.6860

jason@jrwiener.com

www.jrwiener.com

Linda D. Phillips

303.355.0401

linda@jrwiener.com

www.jrwiener.com

 

Francisca Pretorius Joins Firm Full Time

 

Jason Wiener|p.c., a public benefit corporation, is pleased to announce that Francisca Pretorius has joined the firm in a full-time capacity. She will hold the dual roles of Senior Associate and MBA in Residence.

 

Francisca practiced corporate law in Johannesburg, South Africa, for 4.5 years. She has extensive academic experience and is currently an adjunct lecturer at Strathmore University’s law school in Nairobi, Kenya, teaching Foundations of Roman Law and Legal Practice Management. Francisca also worked for Colorado State University’s Center for the New Energy Economy on renewable energy policy. She previously served on the board of a South African non-profit organization that identifies, connects, and mobilizes change-makers in Africa. Francisca is licensed to practice law in Colorado and South Africa and holds an LL.B (Bachelor of Laws) from the University of Pretoria, South Africa, an LL.M in International Trade Law with a thesis on carbon markets from the University of Stellenbosch, South Africa, and an MBA from the Global, Social, and Sustainable Enterprise program at Colorado State University.

 

“From the moment I met Francisca in the Global Social and Sustainable Enterprise MBA program, I knew she was a superstar. The combination of international big-law experience in South Africa, a background in renewable energy policy, combined with a social enterprise MBA makes Francisca uniquely suited to the work our firm does. Francisca brings a balance of rigor, attention to detail and tenacity, along with a tender touch with training and a big picture perspective. We are lucky to have Francisca join the team full-time and to offer her unique skill set and talent to our clients and partners. The whole team is excited by this big step forward,” says Jason Wiener, Principal. Linda Phillips, Senior Of Counsel, shares that “Francisca is a dynamic attorney who is passionate about the law and about helping those who want to create and build their social enterprise businesses. She will be a true bonus for our firm and we are delighted she is able to join us full time.”

 

In her practice Ms. Pretorius will work on business entity formation (with a focus on cooperatives), custom transactional support, regulatory compliance (especially compliance with the General Data Protection Regulation), and other areas of law that support mission-driven companies and social enterprise. Her full bio is here.

# # #

New Law: How investment in culture and people fosters innovation, collaboration and client service

Originally published on September 5, 2018 on Medium.

How does a law firm, known largely as a stagnant institution, nurture a culture of trust, openness, entrepreneurship, resilience and collaboration? Read on to learn how we are liberating ourselves — from the clock and the obligations of client matters — to focus on the meaningful and necessary work of building a durable culture, adding value to clients, and propagating positive social and environmental impact. Much of what we are practicing, as described below, is experimental and still evolving. This is our best effort to practice what we preach.

I had never given much thought to what it takes to assemble a top-flight team of values-aligned, talented, dedicated and compatible people although I’ve been fortunate and privileged to have both served on and helped assemble such teams. Our current team, assembled over the course of 1.5 years, is the most awesome (in every respect) amalgamation of backgrounds, passion, talent, and dedication that I have ever thought possible. To be honest, that this team has come together at all feels as much happenstance as serendipity. I know now, however, that there are carefully nurtured and delicate dynamics at play.

Our whole team recently came together in Boulder, Colorado for a 2-day retreat. We put up out-of-office memos, we turned off the phone and we informed clients and strategic partners that we would be inaccessible. For folks who still largely inhabit a world where “time is money,” this kind of planned down-time is relatively rare. Throughout our time together, we discovered we are rare in many respects.

I. Open Book Collaboration

Over the last year, I have been slowly opening up the books of the firm to our team. I started with a 2017 year-in-review. I went over our high-level financial performance, key metrics and qualitative aspects of our practices and performance. This was an opportunity to tell the arcing story of the firm’s history, the ebb and flow of various campaigns and big projects, and to use the financials as a canvas for telling the richer story. I was struck by the level of engagement and the curiosity of the team. For some, it was the first time they were ever exposed to financial statements at all, let alone those that affect their own employer.

I followed up this year-in-review with a set of 2018 projections. The most exhilarating part was when I…drumroll please…unveiled our “Moonshot.” By this point, three members of our team had only been with the firm for less than two months. How cool! To start a brand new job and to have a front-row seat to an organization’s launch point for the moon. To be clear, we were not a start-up at this point. This presentation took place around the 4-year anniversary of the firm. For most of that time, the firm had been just me and one or two part-time contract attorneys. I gave this presentation to six people. From one to six team members in less than one year. That’s a lot of growth!

Like most moonshot goals, we set ambitious goals for the next 4–5 years. I confessed not having a clear picture of what strategy or tactics we would employ to reach the moon. I only knew that the moonshot had to be inspiring, credible and imaginative. To my surprise, it was…for all six of us. That was one of the first real signs I had that we had the right people.

II. Collaborative Goal-setting, visioning and strategic planning

I more or less set the 2018 goals and strategy by fiat. The team was too nascent and without historical context to engage in collective planning. Plus, we were planning for a merger with the law practice of Linda Phillips. Thus, there were too many “unknown unknowns” to go through a strategic planning process for the 2018 fiscal year in early 2018.

So, with early 2018 strategy and goals presentation as a backdrop, we hit the ground running at the 2018 firm retreat. I gave a summary review of the 2018 year-to-date. I refreshed everyone’s memory of our 2020 moonshot and I presented a model for what the launch path would look like to achieve it. This gave the context everyone needed to fully and meaningfully contribute to a strategic plan.

We spent the better part of two days engaged in the profundity of firm culture, client screening, business development, vision and values and strategic planning. Some of us confessed our predisposition for “passion and purpose fatigue.” Some revealed a rejuvenated motivation to tackle big, thorny social and environmental issues, including climate change, economic inequality and social justice. Ultimately, we bonded over our shared sense of purpose and our commitment to our core values.

I have been deeply impressed and touched by the occasions and experiences that remind me of the timeliness of our core values. I developed those as a solo practitioner and entrepreneur, back in 2014, long before I knew 4 of my 5 fellow team members. We explicitly revisit and discuss these core values every week on our team huddle.

We re-committed to the moonshot goal. The energy of the retreat hardened our commitment to our team and to our purpose. To get there, we knew the challenge would be strategic planning in an environment where we, not unlike most businesses, are not fully in control of the key inputs. We divided up the pillars of our core business — Internal Relationships, Business Development, Client Service, Internal Systems (tech), Internal Systems (processes), and Inclusivity and Diversity — and assigned each component to one team member. We follow the Todoist model of accountability — every task must have a direct responsible individual if it is to be done.

For each strategic plan component, we are following a standard 1-page format that involves:

· A vision statement.

· 3–4 high level elements of the component plan.

· 3–4 high level goals per element.

· 3–4 key performance indicators for each goal.

Each strategic plan component can include tactical detail in endnotes or subsequent pages.

Over the next 5–6 weeks, we will rotate presenting on drafts of each of our plans, providing feedback, iterating and ultimately consenting to the final assemblage of the plan.

We will be experimenting with a few new things:

· We will budget for conferences and events up front and allow team members to self-select which conferences they want to attend, with input from the team.

· We will budget for firm-wide and individual training. Each team member will have a time and monetary budget that they control. The aim is to increase competence and interdisciplinary knowledge and experience.

· We will budget for innovation and technology. Team members will have individual budgets they control for experimental projects and technology, to make the most of each team member’s creativity.

III. People Policies and Work Expectations

We hired our first employee in June of 2018. Despite having long practiced employment law, it is quite different to be an employer than to advise employers. I found myself in the seat that our clients usually occupy. I had to get comfortable with all that hiring employees entails; payroll, fixed costs, workers compensation, leading, supervision, and, most importantly, creating a culture and work atmosphere that enabled the highest contribution from people.

To do this, I resolved certain things:

· First, I would resist the inimical truth that setting compensation is an inherently imperfect science. I made the typical “negotiation” process collaborative, open and transparent. I showed prospective employees all the numbers and the revenue and cost model for the position. Their contribution and commitment is valuable to me and the firm and I want each team member to know that.

· Second, I didn’t want to baby-sit employees. I wanted to only hire people I trust unconditionally. I wanted to set each employee free to do their best work and to be happy. I tell team members that they can work any time, any where and in just about any way that suits them, as long as they get the job done to their highest ability given the circumstances and resources available. One team member chose to work while visiting a friend in Scotland. Another worked remotely from South Africa while visiting family.

· Third, I wanted to practice what we preach. The conventional 2080 work hours/year is…unworkable. It roughly translates into more awake time at a desk than with family. This is not how I choose to live my life, and so it would be hypocritical to impose this on co-workers or employees. Therefore, we set an expectation of a 1600 hours of work/year. Not just billable hours; that’s total time. This translates into approximately 31 work hours per week for 52-weeks, or 33 hours per week for 48-weeks. What employees chose to do with their time outside of the 1600 hours is up to them. We expect our team members to recharge themselves and to take time away. We put in place safeguards against burn-out.

· Fourth, we mean what we said in #3. We have an unlimited vacation policy. As long as employees meet expectations and add value to the firm according to prescribed metrics and quality goals, our team members are in control of their time.

· Fifth, we pay at or above market rates to our employees and contract attorneys. I regularly review market data for firms of our size, practicing in comparable areas of law, and practicing in similar geographic regions. We provide health insurance to all full-time employees, a 401k plan, paid professional development, a remote work stipend, and paid access to a rich technology platform for collaboration.

· Sixth, we create the conditions for innovation and entrepreneurial risk taking. By maintaining flexible and reasonable work expectations, we can afford to enter into creative and alternative fee arrangements with clients. We are experimenting with fixed fee, monthly subscription models, and other non-time-based billing practices. Our aim is to enhance value to clients while creating a fun work environment.

Tax Advantages of Selling to a Worker Cooperative

Why Try a Worker Co-op

Business owners should think carefully and develop a strategic plan for exiting a business. You, the business owner looking to sell, can leave your business by selling it to family members or third parties, merging it into a larger organization, selling it to employees through an employee stock ownership plan (ESOP), or by simply closing up shop. However, one often overlooked method that business owners, especially small to medium-sized business owners, might consider is having the employees form a worker cooperative. You can then sell the business to the cooperative with some possible tax advantages.

The benefits from this type of exit strategy are numerous. For the employees, a purchase of the business would mean job stability, more control over their careers, higher morale, and usually better productivity. unlike an ESOP, where the employees are simply beneficiaries of a trust holding their stock, with little management authority, in a worker cooperative the employees can directly operate the business. Through year-end distributions of net margins, the employee-owners build up equity accounts that act as their retirement nest egg.

Also, unlike an ESOP, there are no added administrative costs in forming or maintaining a worker cooperative and the regulatory environment

is much less strict. A cooperative is a business model, not an ERISA regulated retirement plan, and therefore it is governed by state incorporation statutes and federal tax statutes.

Selling to a worker cooperative is a business exit strategy that ensures your business will continue, while also providing the seller with compensation for creating and growing the business. If the sale to employees is completed over a number of years, you could continue with management and training until the sale is finished. Note that not all the employees of a company have to become member/owners of the worker coop. But for those who choose to become owners, they can be trained in the responsibilities of ownership and management, giving you assurance that the company will continue as planned. The sale of the company to the employees can take place on a designated date or over a substantial period of time (such as five to ten years). This would allow the employees or the co-op to pay the entire purchase price over several years, often out of net profits. Rhere is the possible favorable tax treatment for you, the selling owner under internal revenue code §1042 (26 u.s.c. § 1042).

Section 1042 Tax Treatment

Code §1042 allows you to sell your stock to a worker cooperative with resulting favorable tax treatment. To qualify for the favorable treatment under §1042, the proceeds from the sale of your interest in the company must be reinvested in a “qualified security,” and the gain then is deferred indefinitely.  In other words, the capital gains that result from the difference between what you invested in the company and what you receive upon sale will not be taxed unless or until you sell the “qualified security” that you purchased from the proceeds of the sale.  And then the gain will be recognized as a long-term capital gain only to the extent that the amount realized on the sale exceeds the cost to the owner of the qualified replacement property (26 U.S.C. 1042(a)(3)).

For a very simple example, say you invested $100,000 in your company and over the years it has gained in value.  You sell the company to a worker cooperative for $1,000,000. You use those funds to purchase a qualified security (like Apple or Amazon stock). When those shares are sold in the future, the tax will only be on the difference in value relative to when you purchased the Apple stock and when you sold it.  If you don’t sell it and the Apple stock becomes part of your inheritance, there will be no capital gains tax liability to you or your heirs. If you have not used the §1042 advantages, then you will be required to pay capital gains tax on the $900,000

Specific requirements must be met before §1042 is available to you. To qualify for § 1042 treatment, there is a four-step process:

  1. The sale of the company’s stock must be to an eligible worker-owned cooperative or to an ESOP.
  2. The worker cooperative must own at least 30% of the total value of all outstanding stock, or of each class of outstanding stock, immediately after the sale.
  3. The taxpayer (either you or the cooperative) must file a written statement with the IRS consenting to the application of §§ 4978 and 4979A with respect to the owner or the cooperative.
  4. Your holding period with respect to the purchased qualified securities must be at least three 3 years (determined as of the time of the sale).

 

The first step is satisfied by the formation of a cooperative under Title 7, either Article 56 or Article 58, of the Colorado statutes.

The second step requires some financial planning on your part and the employees who will be purchasing the business. You have to look seriously at your employees and have lengthy discussions with them about potential ownership.  Not all employees may be capable or willing to become owners.  You may have to bring in a new person who will eventually replace you as the senior manager if you do not have personnel you believe can be trained to do what you do.  Then you must determine the value of the company, which may require the services of a business valuation professional. The employees will be required to find a way to purchase at least 30% of the business the first year of the sale. This may require the employees to obtain a loan or other funding sources for the initial payment. There are other financing options available, such as an owner carry-back, or the cooperative itself executes a loan for the 30% initial payment. The remaining 70% of the purchase price can be paid over a number of years, as determined up front by you and the new employee-owners.

The money you receive for the sale of the business must be invested in qualified replacement property for a minimum of three years. “Qualified replacement property” is defined in the Code, but the definition is a little cumbersome. Generally, it means any security issued by an active domestic corporation that is not issued by the company being sold and that does not have passive investment income in excess of 25% of the gross receipts of the corporation for the preceding tax year.

Codes §§ 4978 and 4979(a) concern tax on certain dispositions by cooperatives and generally provide that there will be a tax imposed if the cooperative sells the securities it purchased from the owner before the three-year holding period provided in step 4 above is concluded. Of course, a tax professional should be consulted concerning whether a §1042 election is appropriate or even warranted for your particular business.

Example

As a simplified example of how this might work, suppose that a company has ten employees and you wish to sell the company for an agreed-on value of $750,000. All of the employees wish to purchase the company from you (although it is possible to sell the company to fewer than all employees). The employees form a worker cooperative and purchase the entire company.

The employees purchase at least 30% ($225,000) in cash on the date of sale and the new cooperative signs promissory notes to you for the remaining 70%. You use the $225,000 to purchase qualified replacement property to be held for at least three years. You and the employees are now owners of the cooperative, each with one vote and each with the power to participate in the governance of the company. As part of the agreement between you and the new employee–owners, it could be provided that you retain certain management authority or a Board seat until more of the notes are paid.

Over a period of years (all as agreed), either the cooperative itself or the employees can pay for the remaining ownership interests. Payment can be made from net margins or by the employees making additional capital contributions, or by raising capital from non-member outside investors (e.g. through a private placement offering, a crowdfund offering, or a direct public offering).

Eventually, you are paid in full and can retire, knowing that your company will continue with owners that you have trained and who you believe will continue your legacy. The community has not lost a business and its tax base, the employees have job stability, and their families have the knowledge that a nest egg is growing in the company. When an employee leaves the company or retires, the cooperative can redeem his or her equity account over a period of time or all at once, as agreed by the employee–owners.

Conclusion

The worker cooperative is a flexible business model that can be used by any group that is interested in creating a democratic decision-making company that benefits the employee–owners with job security, a sense of pride, and possible retirement income. In today’s economy, many small business owners would like to retire or at least start planning their retirement. However, they may find that there are very few opportunities to sell their businesses to a third party, and family members may not want to continue the company. By using a worker cooperative model and selling your business to employees who have the knowledge and enthusiasm to continue to provide products or services, you can feel good about passing the business along to someone who cares.

Corporate governance for stakeholders

My journey to the practice of law has not been linear. My sensitivity to injustice and inequality, on the other hand, has been a constant driver. I’ve always been in search of a solution, which led me to seek a deeper understanding of the systematic ways inequality has been ingrained into the fabric of society, which led me to law school. If you had told me when I was eighteen that eventually I would come to the realization that a piece of the solution was dependent on reforming corporate governance, I would have scoffed indignantly at the idea that corporations could be anything but evil money-making machines.

I’m not sure when the switch flipped, but sometime during law school I began to see how corporations could be leveraged as a solution if we recast the role they play in society. As my colleague, Lenore Palladino, writes in her recent blog post on corporate governance, “Why Workers on Corporate Boards Just Makes Sense,” corporations are run “according to a neoliberal model of shareholder primacy,” but that doesn’t mean they have to continue to be run that way or that it even makes sense. Corporations can and should be run differently. The corporate form and its many variations can be used to create economically viable businesses that benefit workers and communities, that are good stewards of the environment, and that demand capital in service of stakeholders.

Giving workers a voice in their companies, if not an ownership stake, has a role to play in breaking the extractive cycle corporate American has been in for much of modern history. Positioning workers so that they have a say makes sense from a practical point of view too. Without workers corporations don’t create value for anyone. Workers are the face of a business, they deal with customers and understand the day-in and day-out operations in a way the C Suite cannot. Placing workers on corporate boards also creates more accountability for companies that claim to consider all stakeholders in decision making. As Lenore points out in her article, giving employees board representation puts stakeholders on the board, creating a board that inherently governs for its stakeholders and not just shareholders. Often self-interest is viewed negatively, but when you consider creating a board where a variety of self-interests are represented, it can be leveraged to accomplish measured and equitable outcomes that benefit society as a whole.

Got Foreign Investors? What you need to know about Regulation S

Raising Money Abroad

Picture this – your start-up is ready to raise seed money; you think your business has international appeal and you want to open the round up to foreign investors. This might be the right strategy for your business, but have you thought about securities compliance? Will you also open the round to US investors? How will you attract the investors? Will the prospective investors purchase securities with transfer restrictions? These are all important questions to ask when you’re considering taking on foreign investors and you want your securities to be exempt from registration requirements.

Reg S

Regulation S of the Securities Act of 1933 (“Reg S”) provides an exemption from registration for “offers and sales of securities outside of the United States.” Companies issuing securities pursuant to Reg S must comply with certain restrictions on their offerings. Such restrictions are put in place to ensure that the exemption is not being used to improperly circumvent registration requirements and sell unregistered securities in the US. Reg S is comprised of five rules:

  • Rule 901: General statement of regulation
  • Rule 902: Definitions
  • Rule 903 and 904: Safe harbor rules
  • Rule 905: Resale limitations on equity securities issued pursuant to Reg S exemption

The focus of this post is the Category 3 safe harbor rule provided by Rule 903, which is available to US companies issuing securities to foreign purchasers. To qualify the following conditions must be satisfied:

  1. It must be an offshore transaction.”

Rule 902 defines “offshore transaction” as an “offer not made to a person in the United States…and at the time the buy order is originated, the buyer is outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer is outside the United States.”

  1. There cannot be any “directed selling efforts” in the United States.

Rule 902 defines “directed selling efforts” as “any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the securities being offered in reliance on…Reg S.” This restriction is primarily focused preventing any advertising or offering of the securities in the US when the securities are being offered pursuant to Reg S. This ensure that the unregistered securities are only offered and sold to foreign purchasers and that a US purchaser will not learn of the issuance through any kind of public advertisement or publication in the US.

  1. The securities will be subject to a distribution compliance period and future sales will be restricted.

Finally, securities issued pursuant to the Category 3 safe harbor of Rule 903 are required to observe multiple transfer restrictions. Such securities are subject to a distribution compliance period, the length of which is dependent on whether the offering is for debt (forty days) or equity (one year) securities. During the compliance period, the securities cannot be re-sold to a US purchaser (with limited exception, discussed below). Further, any sale made prior to the end of the distribution compliance period is required to comply with the following requirements:

  1. The purchaser must certify that it is not a US person or that it is a US person purchasing the securities pursuant to an exemption from registration under the Act;
  2. The purchaser of the securities agrees that it will only re-sell the securities pursuant to Reg S or another qualifying exemption under the Act;
  3. The purchase agrees not to engage in a hedging transaction;
  4. The security instruments bear restrictive legend clearly stating the above-mentioned restrictions on transfer; and
  5. One or more of the charter documents of the issuer, i.e., its Operating Agreement or Articles of Organization, must explicitly state the transfer limitations to which its securities are subject.[1]

Raising money is a complex process but taking the time to do it properly is critical. Failure to comply with securities regulations can lead to complex and costly enforcement actions with consequences ranging from fines to criminal charges. The good news is that these consequences can be avoided by creating a fundraising strategy that addresses securities regulations and complies with the applicable requirements.

[1] 17 C.F.R. 230.903(b)(3)(iii)(B)(1-4)

Jason Wiener | p.c. Named “Best For The World”

Jason Wiener | p.c. is proud to announce that we have been named “Best For The World” by B Lab for the second year in a row. This year’s award focuses on governance within the legal industry.

We have been a certified B Corp for three years and a Public Benefit Corporation for nearly four years. Jason Wiener, Principal at Jason Wiener | p.c., had this to say: “We are honored to join such impressive company with others recognized as best for the world.  This is a very meaningful distinction. We will continue to strive to advance the notion that business can be a force for good.”

We are intentional about working with and advising companies that are progressive in their approach to business. Whether it be a company committed to having a net positive environmental impact or a small business that wants to implement democratic ownership principles, we are helping our clients innovate their business structures and governance practices to achieve better outcomes for employees and communities.

As a firm, we re-visit our values and mission statement weekly to discuss how we are living out our values and where challenges arise. This results in an open dialogue among everyone at the firm about how we can better serve our clients and what impacts our actions are having on our community at large. Our most recent community initiative, the Legal Café, came out of this open dialogue. The Legal Café is a free event, inspired by the Sustainable Economies Law Center, where we invite community members to join us for a short presentation on a legal issue and an hour-long small group Q&A with our attorneys.

The practice of regularly discussing our firm values keeps our work fulfilling and reminds us of the positive impact we are making while also keeping us honest about where we can improve. It has been a wonderful tool for reflection and goal setting. Out of this and other practices we are creating a workplace that rewards everyone for their efforts, learns from the past, and creates effective decision-making structures.

Perhaps the most important part of being a social enterprise is continual evaluation of current practices with a critical eye to where we can improve. Through retreats, retrospectives, and weekly team huddles, we evaluate our impact internally and externally—constantly looking for ways to improve. As a result, our firm takes an iterative approach to client work; we are not hesitant to try new things. This approach keeps us engaged, flexes our creativity, and ensures that we are delivering innovative solutions for our clients and community.

As we grow, we are excited to also grow our community focused offerings. One long-term goal we have identified is to increase the amount of pro bono work we do individually and as a firm.  To do this, we plan to continue hosting our Legal Cafés, explore pro bono partnerships, offer one-on-one consultations to low-income entrepreneurs, and increase our use of technology in a thoughtful way that will allow us to serve a more diverse set of clients.

We are excited and honored to receive recognition for our work as a B Corp. To anyone new to this space, there are a variety of practices that have led us to where we are. Don’t be afraid to experiment and actively engage your employees, vendors, and customers in the discussion about ways to improve.  Give out much responsibility, trust people—then listen to and implement the feedback.  Together, you will have more impact than you could individually.

Limited Cooperative Associations and Early Stage Financing

Cooperatives are the original social enterprise business model and Colorado is emerging as the “Delaware of cooperative law,” thanks in no small part to limited cooperative associations (LCAs), authorized by C.R.S. Title 7, Article 58. The limited cooperative association is a relatively new entity type, adopted in Colorado in 2010.  It offers a balance of flexibility, self-determination, cooperative identity and fundamental protection for the cooperative principles and economic structure. As of 2017, LCAs can also elect the protections and privileges of the Colorado Public Benefit Corporation Act.

LCA’s, like traditional cooperative corporations, are for-profit member-owned business structures that also subscribe and adhere to seven widely recognized cooperative principles.

Benefits

The cooperative and LCA model leverage certain unique theoretical and empirically proven advantages (see references one, two, and three), including:

  • Stickier relationship between user-customer-members and platforms
  • Greater user trust, based on data protection, user-member centricity
  • Higher success rate (lower failure rate) over long-term
  • Higher customer retention rate when ownership is shared
  • More resilient business models through economic cycles
  • Lower workforce attrition rates and higher employee morale
  • More stable governance
  • Alignment of interest between members and investors
  • Tax efficient as primarily pass-through entity for tax purposes
  • Leadership focused more on producing long-term value to co-op’s various stakeholders
  • Distributed capital and equity base creates motivated network of user-members
  • Stabilize and increase positive economic impact in communities
  • More transparent and democratic decision-making processes de-risks strategic maneuvers
  • Longer-term horizon and non-liquidity based options available for equity redemption and planning purposes

Investments and ROI

Like traditional corporations, public benefit corporations, or LLC’s, LCA’s can generate returns for investors.  LCA’s operate with pluralistic purpose, for the benefit of members, to generate a profit, and to tend to the interests of other stakeholders, including investors.  LCA’s distribute profit to their members on the basis of “patronage”; the value of goods or services contributed to or purchased from the LCA, and to investors based on the relative amount invested.  Subject to certain limitations, LCA’s can generate returns for investors based on profitability, distributions on profitable asset sales, refinancing, or through a liquidity event.  LCA’s, as member-owned and democratically-governed entities, seek to grow and operate sustainably for the benefit of their members, and thus do not set out with the objective of demutualizing or undergoing a liquidity event. Consequently, the primary mechanism for generating a return on investment is through sustainable operations and profitability.

 

Financing Examples

Traditional and mature cooperatives have tended to finance operations and growth using a preferred share that earns a target, non-cumulative, non-guaranteed dividend over a minimum holding period of between five to ten years.

More recently, multi-stakeholder start-up LCA’s have been using revenue-based financing mechanisms to raise capital, offering investors a return of up to a multiple of 1-5x the original investment, or a fixed percentage of profit for a fixed duration of time.  Once the cap is reached, the shares are treated as automatically repurchased. These instruments are sometimes called demand dividends.  Even Silicon Valley and New York VC’s are catching on to revenue-based financing and alternative business models as a way of helping to build a more sustainable and healthy business.

Non-exhaustive list of examples of seed-stage investment terms based on recent offerings.

Equity equivalent investment type:“Capped Return, Self-Redeeming”“Profit Share, Self-Redeeming”“Hybrid Profit Share – Capped Return”“Target Dividend”
Original investment (e.g.)$500,000$500,000$500,000$500,000
Return3x cap, no pre-set profit allocationX% of profit for 5-years.Greater of Cap or X% of profits for 5-years, with true-up within 90-days of 5-year anniversaryTarget 5-8% annual dividend (non-cumulative)
LiquidityPriority distribution of Cap, less prior distributions before any distributions to membersX% of positive proceeds after debt.Greater or Lesser of Cap or X% of positive proceeds after debt.Priority distribution of original purchase price plus declared but undistributed dividends.
RedemptionAutomatically redeemed at CapAutomatically redeemed as of 5-year anniversary, subject to true-upPut option at 5-year anniversary. Call option by Cooperative at any time.
Transferability/

Resale

NoNoNoNo
“Bandwidth” for realized ROIDiscretionary cash flowX% of profitGreater of discretionary cash flow or X% of profitAfter-tax net income

 

PR: Tonya Price Promoted to Associate

FOR IMMEDIATE RELEASE 

                                                                                  

June 4, 2018 

CONTACT: 

Jason R. Wiener 

Jason Wiener|p.c., a public benefit corporation                                                                                                        Linda D. Phillips 

720.445.6860                                                                                                                                                                                         303.355.0401 

jason@jrwiener.com                                                                                                                                                                       linda@jrwiener.com 

www.jrwiener.com                                                                                                                                                                           www.jrwiener.com 

 

Tonya Price Promoted to Associate  

 

Jason Wiener|p.c., a public benefit corporation, is pleased to announce the promotion of Tonya Price from law clerk to Associate, effective immediately. 

 Ms. Price is a summa cum laude graduate of Michigan State University College of Law.  She recently passed the uniform bar exam and will be sworn in today by the Colorado Supreme Court.  She believes that “the only way to remedy the growing inequality in the U.S. is to make business work for the many by creating models that consider business’ impact on employees and communities, not just shareholders.” 

Her focus on a more just and equitable economic paradigm will add value to the firm’s clients, says Jason Wiener, Principal. “As a founder, it’s always difficult to share stewardship of a vision and purpose with others. With Tonya, it hasn’t been a challenge at all. Tonya gets it; she came in with strong purpose alignment and a strong foundation of skill, competence and capacity for growth and training.” Linda Phillips, Senior Of Counsel, echoes those sentiments:  “We’re so delighted to have Tonya become a formal member of the team, bringing her boundless energy and vision for social enterprise and cooperative businesses and ideals.” 

 In her emerging practice Ms. Price will work on public benefit corporation formation and conversions, cooperative design and formation, compliance with the General Data Protection Regulation, employment issues, and other areas of law that support mission-driven companies and social enterprise. Her full bio is here.   

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Colorado is leading the way in cooperative law

There are lots of reasons to love Colorado – the sunshine, the mountains, Colfax Avenue and all its splendid weirdness, just to name a few. While those things are all great, the coolest thing about Colorado is that it’s leading the way in innovative uses of the cooperative structure, in no small part thanks to our incredibly flexible cooperative statutes. Any business can be a cooperative in Colorado. This means that when we talk with a new client about entity formation, in addition to discussing the merits of traditional business structures, we also get to educate them about cooperatives and help them decide if it might be the right structure for them. While that in itself is pretty cool, Colorado is one of the few states that has adopted the Uniform Limited Cooperative Association Act (“ULCAA”). The ULCAA gives cooperatives the flexibility that is most commonly associated with LLCs, including having investors that exclusively make capital contributions. Having an investor member class can make the cooperative structure feasible for companies that would normally have to forgo it because they need to raise outside capital on more flexible terms. As lawyers, this means we get to collaborate with our clients and come up with creative solutions for structuring the investor class, creating profitable exits when there is no public offering or sale on the horizon, and attracting investors – all while keeping the cooperative mission at the forefront. Basically, it equates to a lot of intellectual gymnastics and brainstorming sessions, which is when being a lawyer is the most fun and where we offer the most value to our clients. If I’ve piqued your interest, my colleagues, Linda and Jason, have written a wonderful blog that breaks down in more detail why Colorado is leading the way in cooperative law. A big thank you to Fifty by Fifty for publishing the blog and producing great content to advance employee ownership.