Selling and financing a business is complex and costly. However, business owners can strategically plan their exit and achieve a fair value with minimal expenses by selling shares to buyers interested in the business’s operations and production rather than those who focus on the revenue it generates.
Employees, suppliers, and customers are vested in a business’s success. Selling to these stakeholders establishes a continuous cycle, as stakeholders will sell to future stakeholders who want the business to thrive.
When a business generates profit, it creates new Capital. The Capital can either be retained within the business or extracted as dividends. A business must maintain enough internal Capital to sustain its operations and competitive pricing.
In traditional finance, business Capital is a commodity to be bought and sold in Capital Markets, such as stock exchanges. However, these markets are expensive and require many buyers and sellers to set prices. They are typically only available to large companies with many shareholders.
Consequently, larger companies or private equity investors often acquire smaller businesses, as their equity is more easily traded and attracts a higher value.
Reciprocal Sharemarkets with a fixed share price
Instead of selling shares in a traditional market, a business can sell itself continuously and incrementally by selling 50% of the new Capital created with profits. The business establishes a target profit and issues new shares to existing shareholders in proportion to their shareholdings. Existing shareholders sell 50% of the new shares they receive to customers in proportion to the sales.
Reciprocal sharemarkets create a continuous sustainable market where all shareholders can see the state of the business and agree to keep the value of shares at a fixed price and change the rate of share sales to match changes in business conditions. Share markets with stable prices are more straightforward for participants, cost little to operate and are more accessible for regulators to control.
In summary, each month, existing shareholders receive new shares at a fixed price to match the anticipated profit as agreed by all shareholders. The number of shares created each month will adjust to fit the anticipated Capital needs of the business. To make a market each month, all existing shareholders will sell 50% of the shares they receive to transfer to buyers in proportion to the value of their purchases. The customers do not have to accept the shares. They are “customer rewards” or reciprocating future value with customers who supply the money for the profits.
If the business needs more Capital, it offers more shares for sale. Existing shareholders get first preference and then new shareholders. Existing shareholders can sell their shares to others anytime or have a standing order for more shares.
The business will never pay dividends. Suppose it has more Capital than it can use. In that case, shareholders will agree to use profits to invest in other enterprises, issue shares to employees, sell back to the business or purchase goods and services from other companies.
The process obeys the reciprocity rules because existing shareholders share new shareholdings with customers who have paid the money to make a profit. Collections of local businesses with mutual shareholdings create the equivalent of mutual credit systems.
An Example of a Company Changing
A small company currently owned by a single shareholder intends to introduce additional shareholders with the goal of transitioning the business to new ownership. To accomplish this, the company will enlist a local share registry firm utilizing the same system for managing its share registry.
Every month, shareholders will automatically receive a number of shares proportionate to the average projected EBITDA, with the fixed share price. Simultaneously, the board will determine a set number of shares to be sold to customers at a pre-established valuation. For this year, the number of shares to be sold monthly will be calculated as the target profit divided by the total number of outstanding shares, further divided by the fixed price per share and then divided by 12. The shares will be automatically allocated among customers based on their paid amount.
In addition, the board may allow all shareholders to sell a portion of their shares to new investors at a fixed price set above. These shares will be made available with board approval to a range of investors, including company employees, who may opt to receive shares instead of cash for their salary, bonuses, or even potentially as part of their superannuation contribution.
Governance and Implementation
The governance structure can follow a traditional approach or adopt a cooperative model with one vote per shareholder. Another option is proportional voting for board members, where all board members are elected in a single vote.
Only shareholders have real-time access to the number of shares issued last month, total issued, available for sale, purchase requests, and value. Shares will be exchanged at a fixed period, initially monthly and eventually daily.
The business operates its share market, and shareholders face no charges for buying or selling shares, except for taxes automatically calculated and submitted to the tax authorities. The system operator will charge the business a 5% administration fee payable in shares.
Any service provider can implement the system if it transitions its governance and operations to the reciprocal model. It should use the same profit margin as its customers. The initial costs will be legal advice and negotiations with regulators. Once established, it is low risk, low cost, limited and localised.
Benefits to Investors and Consumers
It removes the advantages of high-wealth investors as it gives all investors an equal return. It retains the scale advantages of production while keeping the responsiveness of local organisations and innovation to meet local conditions.
The approach equalises profits from investing in lowering costs compared to increasing sales. In today’s Capital markets, there are typically higher returns from investing in more sales than reducing costs.
It provides a more stable, predictable, and profitable business environment as it gives reliable returns and increases the productivity of the financial market.