Financial Modeling · Business

Is it a good idea to give 49% of my social enterprise to my customers who are poor?

Tyrone Thomas Jr.

March 12th, 2016

I came up with my business model to pave new road in helping poor people climb out of poverty both economically and mentally. I feel that customer equity in the business is a sound concept that will capture and keep them loyal to avoid attrition as well as provide another missing link to overcome the poverty mindset.

New ideas must be tested to validate their credibility and potential for success. My personal belief is that the company should become valued in the billions and thereby still provide sufficient compensation for founders, team members, and employees.

I'm operating across two industries (financial services and helping the poor) that to my knowledge has never done anything of this nature before.

If anyone agrees with what I propose to do, are you aware of any major pitfalls that I need to look out for or things I need to put in place to reverse this move if it starts to be a problem? .

In case anyone needs more information on my business to provide an answer you can go to gofundme . com/ shared savings
or look up my indiegogo campaign or website at United Shared Savings Network.



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Peter Weiss President at American Outlook, Inc.

March 12th, 2016

No.

Build your business and then generate cash through distributions/dividends or sale of the company and then share.  You may be operate your business in ways which you deem socially beneficial but if you need capital or even bank financing you are likely to find having given away nearly half the company will become a real challenge.  

I'm not sure what vehicle you are thinking you would use to accomplish this but the complications which could arise boggle the mind.  Create the wealth then decide how to distribute it to the effect you wish to achieve.

Good luck.

Martin Omansky Independent Venture Capital & Private Equity Professional

March 13th, 2016

I repeat. Talk to a tax attorney. This matter is more complicated than you can imagine. My impression is that either paying bonuses or their equivalents will not avoid taxation, but may be a better tax choice than giving stock away. I believe, however, that the best choice is to loan employees the money to buy their shares, which the employees pay for in notes payable upon a liquidity event. A tax lawyer and/or CPA can sort this out.

Jamal Uddin Inclusive Business Capacity Building Advisor at SNV

March 21st, 2016

Great intention indeed !
You have to think about how you will deliver the benefit to the poor people. Your social enterprise should not be static impact builder rather it should go beyond. It is wise to target few people for few years to change their fate by social inclusion in your enterprise. This inclusion may be different way such as job creation, include them in the supply chain or affordable product and service solution. During running the business give some services to upgrade their lifestyle like nutrition, health, education, training, finance so that they reach in certain level. Save some money for moving forward to fulfill your next desire for social and environmental impact.  

Martin Omansky Independent Venture Capital & Private Equity Professional

March 12th, 2016

Tyrone: Noble thought. If you "give" shares to others, there may be a tax issue of major proportions, and your charitable motives will be engulfed by taxes due that the poor cannot hope to pay. I suggest you talk to a tax lawyer before you decide on a course of action. Other than that, you have not revealed your plan, so I can't comment any further. Sent from my iPhone

Michael Meinberg Teacher (iOS Development) at The Mobile Makers Academy (A Hack Reactor School)

March 14th, 2016

Peter and Martin hit the nail on the head - build the business first, then if it is lucrative you can give a percentage of the proceeds to your poorer customers. Don't give away a percentage now:  Big headache to manage, could have tax consequences, will limit your ability to raise funds if you need to do that (with that complicated an ownership structure).   

Janet McGinty Research, Analysis, Strategy

March 16th, 2016

Hello Tyrone, Ideas are one thing, but more important is execution. Come up with the execution strategy and the costs before you suggest giving away. It is very easy to give something worth nothing.

Andy

March 17th, 2016

Take inspiration from how the co-op used to work in the UK (may still, not sure). When you spent money in store you got a stamp in a book. When you filled the book you got a decent amount of in-store credit. This was a way of sharing profits with customers - that you can retain control of and alter if needed. Of course these days the stamps would be icons in an app...but the concept holds. The likes of John Lewis in the UK show that making all staff owners can work...

Tyrone Thomas Jr.

March 20th, 2016

Thanks for all your comments and they have been valuable in helping me to figure out how to proceed this this idea. I'm going to give it a lot more thought and put it on the backburner for now, but would like to leave it on the table for discussion. 

Tyrone Thomas Jr.

March 13th, 2016

Perhaps I could just assign the stock internally...sort of a loyalty incentive between the company and the member, but not transfer it until company sale or acquisition. I'm thinking 1 share of stock for each member who has been in the program for at least one year and met all eligibility requirements and must remain active until the sale or acquisition. After assignment the member receives their annual stock share dividend in the form of a certificate of savings or bonus in order to avoid the complications & tax issues.   Does this sound like something that will work?

Shel com I help organizations thrive by building social transformation into your products, your services, and your marketing

March 14th, 2016

Tyrone, I'm glad you're thinking big. Having your business based in values and giving to others is a great thing. In fact, my latest book, Guerrilla Marketing to Heal the World, is about how to create profitable products and services that turn hunger and poverty into sufficiency, war into peace, and catastrophic climate change into planetary balance. And there are many possible structures you can explore to accomplish this besides the model of donating equity.

However, 49% is a very large number. You want to make sure to maintain adequate resources in order to succeed a s a business. A 49% return from a dying company is less helpful than a 20% stake in a thriving one. And again, that share doesn't have to be based on equity in the company.