Three Questions for Legal Entities in the New Economy

The choices we make in structuring organizations will lay the foundation for much of the sharing economy.  The more we move our economic activities into organizations designed with equitable, social, and cooperative goals, the more we can transform our entire economy. Existing legal structures – the stock corporation, the cooperative corporation, the nonprofit corporation and others – can be harnessed and adapted to create institutions that will radically change the way we organize our economic activities.

The following three questions should be a starting point for founders of an organization to think about how to structure their activities in a way that furthers the sharing economy:

What will be the purpose of your organization?

Material incentives drive most organizations, but the material may not always be money. Participants in the sharing economy have diverse goals that can include creating rewarding livelihoods, providing for ourselves and our communities, regenerating damaged ecosystems and natural resources, and nourishing our local and global economies. A “payoff” in any of these categories will create wealth of a different kind and materially alter our world.  Determining the basic purpose of the organization will drive the rest of the structure.

How will your organization be sustained, financially or otherwise? 

Organizations of a sharing economy will likely be driven and “financed” less by money and more by people and their needs, passions, concerns, time, and energy. Money will almost always be involved, in some way, with organizations in the new economy; however, money will more likely be sourced from a broad cross-section of our communities, and it will intentionally be recirculated within such communities. The following are some ways that the participants of an organization can help ensure its financial sustainability:

  • Sharing capitalization: In conventional businesses, individuals and entities that provide capital to an entity tend to control that entity and benefit from its profits. In a sharing economy, the responsibility of capitalizing an organization (and the rewards, rights, and risks that flow from it) will ideally be spread among the stakeholders.
  • Sharing profits/benefits: The profits, products, and/or non-monetary benefits that are generated by the activities of an organization will also, ideally, be spread and shared among stakeholders.
  • Sharing equity: Sharing equity in enterprises will help to keep such enterprises community-based and locally owned. In conventional businesses, owners often have an incentive to sell out to larger companies in order to receive a large payout. In the sharing economy, organizations can remove or weaken that incentive by requiring that proceeds from a sale be distributed to a large number of stakeholders. In this way, no single individual is likely to drive a sell-out.

How will your organization be governed and operated?  

Organizations will rise most fully to the needs of a sharing economy by integrating high levels of participation by and sharing with stakeholders. Here is a framework for considering the various ways that rights and responsibilities of an organization can be shared among its participants:

  • Sharing decisions: The best way to ensure that an organization will make decisions that benefit its stakeholders is to give stakeholders a legal right to participate in decision-making.
  • Sharing information: High levels of transparency are essential to the accountability of organizations and to the functioning of organizations with highly participatory decision-making.
  • Sharing risk: Founders and funders of enterprises tend to shoulder the risk that an enterprise will experience loss or liability. In the sharing economy, this risk can also be shared and spread among many stakeholders.
  • Sharing work: Organizations in the sharing economy are also likely to involve high levels of stakeholder participation in the actual work of an enterprise, rather than outsourcing and hiring others to do the work. A grocery cooperative, for example, is likely to be operated by its members. Community-supported farms are likely to involve customers in the actual work of the farm.

***

These three sets of choices are pivotal in determining how our organizations are able to respond to the diverse members of our organizational ecosystems—the stakeholders. The members, consumers, workers, suppliers, constituents, local communities, and other stakeholders of our organizations will increasingly have a role in understanding and deciding how the organization runs. Not only must organizations respond to stakeholders, but stakeholders must respond to organizations. We will all have a civic/personal duty to actually participate thoughtfully and accountably in the various organizations that structure our world.

There are many more questions to think through when deciding how to structure an organization – these three are just a starting place.