Employee Owned Software Company

ParticleWave is currently being organized as startup employee owned cooperative, owned and controlled exclusively by its employees.

This document is a DRAFT of how that might look – based on one founder’s take on how we might be organized and do business. If others are interested and committed to this idea, then we should probably get together weekly or something and go through this process.

This document consists of the following sections.

  • Business Activities

  • DRAFT Organizational Structure

  • Related Resources / Reading

Business Activities

ParticleWave owners will create multiple lines of business that will, in our consensus opinion, be rewarding to the membership both as people who need to eat and as creative software developers. Some potential business activities include:

  • Application Service Provider Model Applications
    We will create commercial web applications using ASP.NET MVC or other web development environments that will compete directly and favorably with solutions developed by companies like 37 Signals (a Ruby on Rails shop). Unlike 37 Signals, however, we will also offer these applications as licensed solutions sold with or without an associated consulting engagement. [My own preference is to see this grow into our core business model].

  • Consulting and Contract Programming and Web Development
    In addition to creating long term value through service applications owned by the company, we will also create software to be owned by clients.

DRAFT organizational structure.

The word owner is used throughout as a synonym for owner-employee. Although we may from time to time hire employees who are not asked to stay on as owners (temp workers, contractors, or potential owners on probation), the company will be 100% owned by active employees. (The only exception to this rule is outlined below in “Legacy Ownership”). There is therefore no stock sold outside the company. Also, as much as possible, we will try to have work performed by employee owners, so temporary workers should be the exception and not the rule. It is not our intent to create a core of “senior partners” who benefit from the work of others, but a true cooperative system.

Company Shares

All owners receive one ownership share for every hour of work contributed that is either billable outside the company or contributes to the goals of the company as laid down by the voting owners. A share is a percentage of the yearly profit payout if the company is profitable, with the downside risk that the hour could have been better spent playing World of Warcraft or eating a hamburger. This is not a stock option, which we all know often turns out to be valueless toilet paper, but a full ownership share, which may also turn out to be valueless toilet paper.

We will create a mechanism for tracking hours that the members can use. The current number of shares, amount of capitalization, and other income and expense information will be available to all members.

Company shares may not be transferred or sold.

Voting Members

Owners who are skilled enough to work billable hours and who wish to help direct the affairs of the company and make a more significant contribution may, with the approval of the existing voting members. Voting members will capitalize the company. The capitalization requirements are $4,800, payable as either:

  • Twenty-four monthly payments of $200.

  • Forty-eight monthly payments of $100.

Voting members expect to work for the company full time, either now or as soon as practicable.

Management

The company is managed by the informed consensus of all voting owners.

A Board of Directors consisting of not more than five owners will be elected every six months. Their responsibilities will be limited to the following areas of concern:

  • Ensuring compliance with Federal, State, and Local laws and tax requirements.

  • (Annually) setting the ratio of gross receipts to be allocated to the general fund versus the membership fund. The general fund should consist of the no more than the amount needed to cover the expenses of the business, plus a prudent reserve.

  • Working with those outside the company (sales, managing vendors etc). Working with the ownership at large to reach a consensus on any and all hiring or firing decisions.

Members of the board will make the same compensation as anyone else, assuming anyone else does. Also, the board should be mindful that it’s purpose is to serve the owners collectively. Shares of ownership and the corresponding dividend payments will always be equal among Non-Voting Members, Voting Members, and the Board. There are no preferred shares, and the rule is one hour of work, one share.

All other company affairs will be decided at a company meeting to be held at regular intervals. This document naturally can’t cover everything we do. Initially, the meetings will be held weekly. Any matter may be raised by any voting owner, with the outcome to be decided by as much as possible by a consensus. In the event a consensus cannot be reached, the outcome will be decided by a simple majority.

Legacy Ownership

  • Capital shares must be transacted within 90 days of an owner’s termination of their employment.

  • Work shares are retained according to the work share formula described in the section “Ownership Share Formula.”

Further Reading

U.S. Federation of Worker Cooperatives
Organization consisting of member companies organized as cooperatives.

The Rochdale Prinicples
A core set of principles and values that many co-op organizations follow.

California Center for Cooperative Development
State analog to the US Federation of Worker Cooperatives. There’s a lot of good information here including an introduction to Worker Owned Co-Operatives.

National Center for Employee Ownership
A detailed resource of information we may need going forward.


Written by John Lockwood in Employee Owned Software on Sun 01 November 2009.