Sharing Risk

1. Statement of Values Regarding Sharing Risk. Loconomics believes that communities are more stable when risks are spread widely, falling lightly on a broader number of people, rather than falling heavily on a select few. Loconomics also believes that sharing risk broadly helps to reduce reliance on wealthy individuals who are generally more capable of absorbing loss. As such, to the extent that it needs to raise capital, Loconomics will aim to raise small amounts of capital from a large number of people. In addition, Loconomics will aim to spread its losses – if any – in ways that fall equitably on all Owners.
2. Background on Financing the Creation of Loconomics.Loconomics was incorporated as a California Corporation in March 2011 with the intention of later converting to a California Benefit Corporation, which it did in May 2012. The Loconomics Platform was created through the work of eleven people who received cash and stock options in exchange for their work. The cash investment was made by Joshua Danielson, Fernando Gago, and Nigel Harrison through the purchase of stock options and promissory notes. At the time of conversion to a cooperative, all eleven people relinquished their stock, stock options, and outstanding promissory notes in exchange for promissory notes that compensate each of the eleven people at a rate of approximately $75 per hour for the time they put into the creation of the Loconomics platform and the risk they took in building the company. These promissory notes total $750,000, accumulate interest at a rate of 5%, and are repayable over the term of 5-10 years. In addition, Joshua Danielson continues to make loans, as needed, to sustain the company, at a rate of 3.25% interest. Loconomics has otherwise not received any investments or loans as of the time that these Bylaws were initially adopted.
3. Allocation of Losses.Until there is a positive balance in the Owner Capital Accounts, all net losses for a fiscal year shall be allocated to the Indivisible Account, even if the Indivisible Account ends up with a negative balance. Once Owner Capital Accounts have a positive balance, then losses may be allocated to the Owner Capital Accounts or to the Indivisible Account, or a combination of the two, as determined by the Board. Losses shall not be allocated on the basis of patronage. Rather, any losses allocated to Owner Capital Accounts shall be allocated equally across Owner Capital Accounts. However, if allocation of a loss would cause any Owner Capital Account balance to go below zero, then the amount by which that account would have gone into the negative shall be allocated to the Indivisible Account.
4. Capitalizing the Company. In order to maintain its independence and self-determination, Loconomics shall limit the ways in which it accepts capital, and shall be careful not to undermine its core values by accepting capital with tight strings attached.
   1. Loans / Promissory Notes: Loconomics shall consider loans and promissory a generally acceptable form of finance for Loconomics, since the note holder’s returns are capped and the note holder does not have the potential to maximize profits. Annual interest rates paid by Loconomics shall never exceed 10%, unless the loan is approved by the Owners. However, under no circumstance may Loconomics pay more than 15% interest on any loan.¹⁷ If Loconomics raises capital through loans, then, if feasible under securities laws, Loconomics shall prioritize smaller loans from non-accredited investors, rather than receiving one or a few large loans from wealthy investors, in order to fulfill its mission of economic justice and shared risk.
   2. Owner Capital Contributions: Loconomics may solicit or require capital contributions from Owners, and such amounts shall be added to an Owner’s Capital Account. Loconomics may choose to pay interest on such capital contributions, or on the balance of or any portion of an Owner’s Capital Account, as determined by the Board. Loconomics shall generally require equal capital contributions by Owners, but may waive a requirement for pre-existing Owners to contribute capital.
   3. Equity Investments and Preferred Shares:Loconomics shall not accept equity investments or issue preferred shares unless such investments or shares are approved by a majority of all Owners. The return on any such investments shall never exceed 15% per year.

¹⁷. See section 12451 of the California Corporations Code. ↩