How we incorporate a democratic organization

We want to incorporate ‘memri’. This open source software project is creating a solution for storing and using data in a totally private manner. It aims to empower people by unlocking the full potential of their data. It does so by storing the data in a private way so that other parties, including memri, can’t use, sell or see any of the data. Your data remains truly yours.

This focus on autonomy, which is one of the core values of memri, can also be found in the way memri organizes itself. It’s an organization that wants to be democratically governed and where each stakeholder group can have an influence on the decision making process. To make that possible we’ve created a set of requirements for our incorporation.

With those requirements we went to talk with legal experts in different jurisdictions. In this blog you’ll find what requirements we have and why, what we learned from comparing jurisdictions and what our next steps will be.

Please note that these findings are our interpretations of the answers we received. If you want to incorporate a democratic organization, make sure to check with experts of that jurisdiction!

Jurisdiction shortlist

After consulting multiple legal experts, four jurisdictions made the shortlist. These jurisdictions are the ones we want to compare:

Netherlands (Years and years of experience with farmer cooperatives)
Italy (Famous for its centuries of corporative culture which today are still being taught at schools, especially in the north of Italy)
Switzerland (Its government is open to new initiatives and making those work)
Estonia (Big fans of cryptocurrency, and even have digital citizenship, making it easy to form new companies via electronic means)

To make our search for the right jurisdiction easier we have created a number of selection criteria we believe to be essential for having an organization that can be governed in a balanced and democratic manner.

In the following paragraphs you will find the different tables in which the answers given by experts are summarized for each jurisdiction.

Requirements for incorporation

Multi-Stakeholder

For a democratic organization to work properly there needs to be a balance, so that it is impossible for one small group to take over power, but it is possible for them to have some influence on the decisions that are being made so they do not get overpowered by the others.
To make it possible to find such a balance in the democratic governance of our organization, the structure we choose should allow memri to define different stakeholder groups. That way memri can enable customers or investors by having a voice in decisions that affect multiple stakeholder groups., without them being able to take over complete control of the organization.

Identifying these different stakeholder groups (e.g. Worker-Owners, Customers, Producers and Investors) and define different rights and obligations for each of these groups via the bylaws of the organization is therefore one of the most important requirements.
It allows the organization and its leaders to be held responsible for having fiduciary responsibilities (they are bound ethically to act in the other's best interests) towards the interest of all stakeholders and the common good which the organization pursues.

It should be possible to define the rights for each stakeholder group in the bylaws of the organization in such a way that within the stakeholder group one person/member equals one vote, but that the influence of the group as a whole on the outcome would be different for each stakeholder group. For example: 10% of the decision is determined by the outcome of a vote in the Customer stakeholder group, 10% by the producers, 10% by the investors, 20% by its members and the last 50% in the Worker-Owner stakeholder group.

In the table below you can see the responses of the different lawyers.

One person one vote

Within each of these groups, one person equals one vote. It should be impossible to buy more influence. By doing that we try to prevent hostile takeovers, or hostile influences on the decision making processes within the organization. We believe that’s essential for any democratic organization.

Bylaws

For our organization it should be possible to define policies in the Bylaws via an electronic solution, so that it is possible for us to define certain processes, or details in a way that they can’t be changed without an organization wide vote. Some examples of policies we want to create are:

Define stakeholder groups rights and obligations
How can they cast their vote
How “heavy” should the vote of the stakeholder group weigh?
On what topics can each stakeholder group vote?
Define voting thresholds
Process for changing or proposing policies
Policies for the board
Process for how the board is selected
Define the rights of the board
Define the responsibilities of the board
Process for how the organization could overthrow decisions being made by the board
Possibly restrict the board to make certain type of decisions on their own

It should be possible to store and alter these bylaws via an electronic solution, apps, virtual meeting or similar. It should be allowed to have the Bylaws written in English and use that English format as leading. (In Estonia the official language has to be Estonian, and because we don’t speak Estonian, it’s easy to see how that could cause a lack of transparency and cause problems in the future.)

The Board

In most jurisdictions a board is a requirement. We want our organization to be highly decentralized, and enable Worker-Owners to make decisions on their own. We want to push as much power to the members as is possible and practical. Then again, board members could be held responsible for any actions of the organization and should therefore have some power to change decisions made by members of the organization. It’s important to have a good balance between the two for it to be successful. Therefore we are looking for a form in which we can at least to some extent limit the powers of the board, for example via the bylaws.

With the use of electronic means of communication there is an opportunity for participation in the governance process between remote individuals in a way that has not been possible in the past. The organization will use this to enable a direct or delegative democracy for as many governance actions as possible.

The board will have certain rights and responsibilities, but can, if necessary, be corrected by a large majority (close to 100%) of the organization.

Different Shares

We want to be able to use different types of shares in order to be able to receive funding and share dividends with investors, founders and employees. Those shares will be divided into Voting Shares, and Non-Voting Shares.

Voting Shares: “Founder” Shares

We want to have the possibility to provide founders and early employees to get remunerated in part by shares that give them the right to a part of the future profits of the organization.

Requirements for founder shares:

One-person-one-vote/share
The conditions of receiving founder shares need to be determined via by-laws or contracts
The dividend received over founder shares needs to be determined via the by-laws or via a members decision during the general meeting
The conditions of selling founder shares need to be determined via by-laws or contracts

Note: The structure should not be focused on selling the organization off to external investors down the line.

Voting Shares: Member Shares

Anyone should have the possibility to become a member by paying a fee. That way one person receives a share that also gives them a voting right on specific topics, and on which they could receive dividends. The amount of votes one has is limited to one per person, however the amount of dividends one would receive will be based on the contribution someone made.

Requirements:

One-person-one-vote/share
Should not be seen as securities, but should allow the organization to acquire additional funding.
Shares should be able to be bought by paying a minimum fee.
It should be possible to deposit additional funds, increasing the potential dividends, not increasing the influence on decision making.
Should be possible to pay dividend on member/voting shares
Conditions of receiving & owning voting shares should be determined via by-laws or contracts, so that they:
Can only be sold back to the cooperative, and not on the open market.
Can’t be owned if a member is not part of the organization anymore. E.g. departing member’s would not long have any voting right, but could still receive a dividend.
It should be possible to ‘give’ these shares to members as part of remuneration
It should be possible to decide on the size of the dividends via a general meeting.

Non-Voting Shares: Funding shares for Investors

We want to be able to receive funding from non-members by selling non-voting shares to capital providers.
Requirements for investor shares:

Preferably it would be possible to determine the conditions of funding shares for investors via the by-laws.
It should be possible to pay dividend on Funding shares
It should be possible to decide on the height of the dividends via a general meeting.

Globally operating & Distributed Workforce

The organization needs to be able to operate, sell software and hire globally. General meetings / votes should not have to take place in the same physical location (or it needs to be possible via proxy).

We want to prevent administrative troubles for our employees. The jurisdiction we incorporate should make it possible to do that in such a way that we can sell our product all over the world, hire employees from everywhere, preferably in a way in which they do not get taxed in multiple countries. It should be simple and easy to understand for employees.

The organization will include worker-owners from many countries in the world. It will most probably not establish a legal entity in most of those jurisdictions. It should be able to offer consistent and homogeneous relationship terms to these worker-owners, regardless of the legal jurisdiction in which they reside.

Decision Making

In general, decisions will be made in a democratic manner. Not in all situations will this lead to having an official vote,-; however some topics do require that. Those topics will be written down in the by-laws.

Decisions that need to be made by all Stakeholders with voting rights

Topics that need to be decided by all stakeholder groups that have voting rights via the General Meeting, or alternative means are, for now, the following:

Height of dividend paid
Choosing the board
Changes to the by-laws

Next steps

Based on these requirements we’ll go back to our external legal advisor and see if we can find the right jurisdiction for us. Currently we are wondering if a structure in which a Cooperative that acts as a holding company for a ‘normal’ Limited company would allow us to have both Worker-Owners and in which we can also attract funds from external investors via the Limited company, without those investors having an influence on what happens in the holding company. We will share any new developments, and if you want to be kept up to date, please subscribe to our newsletter!
If you have any questions feel free to reach out via Bram.van.der.lecq@polis.global.