imutual company structure

richard@imutual
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imutual company structure

Post by richard@imutual » Thu Jul 01 2010 7:09am

IMUTUAL is a public limited company (PLC), not to be confused with mutual organisations such as building societies. It's a PLC with a 'mutual ethos' that combines what is best about both types of organisation. Its guiding principle is that members control the company and benefit from its success by virtue of owning 90% of the shares.

For those who are interested, I thought I would briefly explain how imutual is structured to ensure that the 90% member ownership is achieved and maintained...

The initial shareholders of IMUTUAL PLC are:
- IMTL MEMBER SHARES LIMITED (I will refer to as "IMSL")
- IMUTUAL WORLDWIDE LIMITED ("IWL")

IMSL has 90% of the shares and it acts like a kind of trust, agreeing to transfer shares for nil consideration (i.e. free!) to members as and when they qualify for them

IWL has the remaining 10% of shares. The idea is that any equity / share options given to staff / directors will be in IWL, hence it won't affect the members' 90% stake in IMUTUAL PLC.

The PLC's share capital consists of 5bn ordinary shares with a nominal value of 0.001p. For those unfamiliar with such accounting terms, don't confuse the 'nominal value' with "share price" or "what the shares might be worth". It is common for shares in a public company to have a small nominal value that bears little relation to its worth. For example, if you own shares in Carphone Warehouse Group Plc, they are referred to as ordinary shares of 0.1p, but the share price (i.e. what you could sell them for) at time of writing is around £1.90

At this point, it's worth re-iterating that the PLC's shares are not, at present, listed on any stock exchange and you cannot sell or transfer them - see related topic What are the shares worth?

Why 5bn shares? Well, the company expects to gain a lot of members who will do a lot of transactions, and therefore will, over the years, need to issue a lot of shares. If it runs out of shares to issue, this is a bit of a pain because it has to go back to the shareholders to ask permission to issue more shares. This is not something we want to do on a regular basis due to the administration involved, so we made sure there were plenty of shares available at the outset.

"But hang on", I hear you cry, "If there are 5bn shares, my ten shares for joining aren't worth very much are they? I can only ever hope to own the tiniest fraction of the company". Fair point. This does mean that, in the early stages of the company, staff (courtesy of the 10% shareholding owned by IWL) have a disproportionate number of shares in the PLC. Fear not, let me explain how we will deal with that by going through each of your shareholder 'rights' in turn:

Benefiting from a takeover
The agreements in place between the companies are such that, in the event that the company is to be bought, any remaining 'untransferred' shares held by IMSL get transferred to the members in proportion to their current holdings. This ensures that, collectively, the members definitely get their 90%, even if all of their 'allocation' hasn't been given out yet.

Dividends
If the company decides to issue a dividend, IWL could waive its right to such a dividend, with the members receiving their dividends in full. I have said 'could' rather than 'would' only because we need to think through the full implications of that, but be assured that we intend to operate to the principle that members receive at least 90% of the 'benefits'.

Voting
Again, we intend imutual to be seen as a democratic. Except in very unusual circumstances, I would expect IWL to abstain on votes at the AGM

My initial estimates suggest that all the shares would end up being issued after about 3 years anyway, though that depends on a lot of guesswork (membership growth, number of transactions, types of activity we give shares for). At which point, we come back to you and ask "Can we have some more shares to issue, please". Even if you say "yes", the 90% member ownership is maintained

A final point on IWL. It owns the brand 'imutual' but IMUTUAL PLC has full and permanent entitlement to it within the UK. In other words, the value of this UK business belongs entirely to your PLC and if someone wants to buy it, only shareholders in IMUTUAL PLC will benefit. And nobody else can use the imutual brand, or any other intellectual property of IWL, to compete in the UK. But in the event that someone wanted to replicate imutual in another country, IMUTUAL PLC would not directly benefit from that. I can't say how likely it is that the name 'imutual' would work in any other countries, and such a venture would require significant risk and expense anyway, but I thought it important to point this out.

After much deliberation, the above structure was seen as the most appropriate for the company in order for it to work as intended. As you may appreciate, it's a very complex legal area. I will try to answer any questions you have but I may decline to do so, either due to commercial sensitivity and just plan lack of expertise! I hope you appreciate that this demonstrates a degree of openness you not find in many other companies ;)

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Re: imutual company structure

Post by colsey » Thu Jul 01 2010 8:25am

when you say 5 billion are we talking 5,000 million?

So basically you have control of 5bill shares less current issue shares with a potential veto over members :o .

Loads of other questions but will let it all digest before making an arse of myself.

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Re: imutual company structure

Post by kevinchess1 » Thu Jul 01 2010 8:33am

colsey wrote:when you say 5 billion are we talking 5,000 million?

So basically you have control of 5bill shares less current issue shares with a potential veto over members :o .

Loads of other questions but will let it all digest before making an arse of myself.

No
The membership always havs 90% of how ever many shares issused
5 Billion is the maximimum amount of share that can be issued
I don't know how that relates to other Multi national companys
perhaps someone else can tell me
but it don't sound like too many too me
Politically incorrect since 69

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Re: imutual company structure

Post by richard@imutual » Thu Jul 01 2010 8:37am

colsey wrote:with a potential veto over members
As I explained, that is a highly unlikely scenario. For completeness I could have said:
I would expect IWL and IMSL to abstain on votes at the AGM
Perhaps we can come up with a legal agreement that actually enforces this, but my legal funds are spent for the time being. Got any nice lawyers friends? ;)

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Re: imutual company structure

Post by Essex123 » Thu Jul 01 2010 8:47am

Richard,

Firstly, thanks for posting this. I find this kind of information very useful/interesting.

Secondly, I have some questions:

(i) you say IMSL acts as a kind of trust. Is it a trust in a legal sense?

(ii) who owns IMSL and makes the ultimate call on whether it votes its shares?

(iii) regarding the PLC's share capital, is 5bn the number of both authorised and issued shares?

(iv) are the shares fully paid - e.g. if all the 5bn shares are issued, does the company have paid up share capital of £50,000

(v) more clarity is needed on the role IMSL would play in terms of dividend ('could' waive dividend) and in terms of voting (In the early days, IMSL seems to hold the balance of power in the company. Maybe adjust the articles and memorandum of IMSL so it cannot vote).

(vi) Is it true to say members own 90% of imutual until the point all 5bn shares are allocated?

(vii) Does IWL already hold 500,000,000 shares?

(viii) If so, am I correct in saying the current share capital is divided:

500,000,000 shares IWL
1,160 shares members
4,499,998,840 shares held by IMSL

(ix) if I am correct in point (viii) and assuming IMSL does not vote or take dividends on its shares, then IWL currently controls 99.9997% of the company and the members 0.0003%.

(x) Say you get 1m members, each earning 10 joining shares plus 100 bonus shares for transactions. That would be 110,000,000 shares issued to members and I reckon the split in control and dividends would be IWL 82%, members 18%. Is this correct?

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Re: imutual company structure

Post by richard@imutual » Thu Jul 01 2010 9:24am

Wow, some good questions there. I'll have a go at answering...
Essex123 wrote:(i) you say IMSL acts as a kind of trust. Is it a trust in a legal sense?
No. It's a limited company set up for the purpose of holding shares in IMUTUAL PLC and transferring them between itself and members of imutual.co.uk
(ii) who owns IMSL and makes the ultimate call on whether it votes its shares?
I do
(iii) regarding the PLC's share capital, is 5bn the number of both authorised and issued shares?
They are issued, yes.
(iv) are the shares fully paid - e.g. if all the 5bn shares are issued, does the company have paid up share capital of £50,000
25% paid up currently. They will be 100% paid up before being transferred to members
(v) more clarity is needed on the role IMSL would play in terms of dividend ('could' waive dividend) and in terms of voting (In the early days, IMSL seems to hold the balance of power in the company. Maybe adjust the articles and memorandum of IMSL so it cannot vote).
Yes, I'm sure there is further thinking we can do on this. The first AGM is a way off, so there is plenty of time for us all to consider this and see if amendments to articles, T&Cs etc aare required. And I am happy to state that no dividends will be paid until then, so there is no danger there
(vi) Is it true to say members own 90% of imutual until the point all 5bn shares are allocated?


Yes, I believe it is. As explained above, the method of distributing the shares is just the best technical way of doing it. The fact is, if someone turned up tomorrow and bought the company, the members would get 90% of the proceeds.
(vii) Does IWL already hold 500,000,000 shares?
Yes.
(viii) If so, am I correct in saying the current share capital is divided:

500,000,000 shares IWL
1,160 shares members
4,499,998,840 shares held by IMSL
It is 500,000,000 shares IWL and 4,500,000,000 shares IWL. For ease of administration, the process of transferring shares / issuing certificates to members and updating the shareholder register will take place periodically, probably quarterly.
(ix) if I am correct in point (viii) and assuming IMSL does not vote or take dividends on its shares, then IWL currently controls 99.9997% of the company and the members 0.0003%.
As above, I don't envisage IWL either voting OR taking more than its fair share (i.e. 10%) of any dividends. Happy to consider changes to enforce that
(x) Say you get 1m members, each earning 10 joining shares plus 100 bonus shares for transactions. That would be 110,000,000 shares issued to members and I reckon the split in control and dividends would be IWL 82%, members 18%. Is this correct?
Until all the currently-issued shares are transferred from IMSL to members, IWL will 'technically' have more than 10% control. But, as per the explantions above, it won't in reality.

If we perceive that shares are being issued too slowly, we can always increase the rewards, give bonus shares to members for past transactions and/or do a share consolidation. Lots of options

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Re: imutual company structure

Post by richard@imutual » Thu Jul 01 2010 9:32am

richard@imutual wrote:
(ii) who owns IMSL and makes the ultimate call on whether it votes its shares?
I do
This is a good point, actually. I would prefer it if I wasn't involved in IMSL, just to reinforce its independence. So long as we make sure that whoever does own/control it HAS to operate it in the way we all need it to

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Re: imutual company structure

Post by Essex123 » Thu Jul 01 2010 10:12am

Thanks for your comprehensive reply Richard.

I think a lot of the potential issues in my head come back to IMSL, its independence and how it treats shares it owns but has not issued.

I believe that as things stand, IMSL needs to be independent of IWL, the PLC and persons associated with these entities. I think there is a problem around who owns IMSL and who the directors are, because of conflicts of interests and the potential that company is sitting on shares which could at some point be worth millions (and you don't want to appoint someone who could run off with that.)

The ideal arrangement for IMSL might be for it to be run in the same kind of way as an employee benefit trust or company pension scheme.

E.g the PLC could own IMSL and maybe appoint a minority of directors. However, there should be legal arrangements which remove any claim the PLC could have to IMSL assets and the majority of the directors should be independent (nominated by those who have vested shares from IMSL)

Maybe this could be taken one step further to increase transparency and reduce costs... instead of IMSL transferring shares quarterly into individual names, maybe IMSL could actually act as a nominee company? Then anyone who holds their shares in the nominee account could be given the right to elect the independent directors of IMSL. Furthermore, the articles of IMSL could state that in the event of change of control of either IMSL or the PLC that the issued but unallocated PLC shares held by IMSL would be distributed pro-rata to existing PLC shareholders within the nominee account.

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Re: imutual company structure

Post by macfamily » Thu Oct 18 2012 8:12pm

Essex123 wrote:Thanks for your comprehensive reply Richard.

I think a lot of the potential issues in my head come back to IMSL, its independence and how it treats shares it owns but has not issued.

I believe that as things stand, IMSL needs to be independent of IWL, the PLC and persons associated with these entities. I think there is a problem around who owns IMSL and who the directors are, because of conflicts of interests and the potential that company is sitting on shares which could at some point be worth millions (and you don't want to appoint someone who could run off with that.)

The ideal arrangement for IMSL might be for it to be run in the same kind of way as an employee benefit trust or company pension scheme.

E.g the PLC could own IMSL and maybe appoint a minority of directors. However, there should be legal arrangements which remove any claim the PLC could have to IMSL assets and the majority of the directors should be independent (nominated by those who have vested shares from IMSL)

Maybe this could be taken one step further to increase transparency and reduce costs... instead of IMSL transferring shares quarterly into individual names, maybe IMSL could actually act as a nominee company? Then anyone who holds their shares in the nominee account could be given the right to elect the independent directors of IMSL. Furthermore, the articles of IMSL could state that in the event of change of control of either IMSL or the PLC that the issued but unallocated PLC shares held by IMSL would be distributed pro-rata to existing PLC shareholders within the nominee account.
Agree :thumbup:!
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