Sharing Wealth and Prosperity

  1. Statement of Values Regarding Shared Wealth and Prosperity.
    1. Reinvesting in Loconomics:The vast majority of Loconomics’ earnings will be re-invested into Loconomics to grow the Loconomics community, to create benefits and services for freelance workers, and to advance Loconomics’ social mission. This will be particularly important during the early years of Loconomics’ development, in order to ensure that the company launches on a strong foundation. The price of services at Loconomics will generally be set with the goal of meeting operating costs, as opposed to generating a profit, which sets Loconomics apart from conventional businesses that set prices with the goal of earning a profit for shareholders.
    2. Sharing Earnings Among Owners:When Loconomics’ earnings exceed costs, the resulting surplus income will be primarily allocated or distributed to Owners, as described below.
    3. Avoiding Profiting Off the Labor of Others:In addition, in accordance with cooperative values, and to disincentivize Owners from earning money from the participation of Non-Owner Service Providers, Loconomics will avoid paying Owners dividends deriving from the portion of Loconomics’ earnings that are attributed to fee payments made by Non-Owner Service Providers.
    4. Fair and Reasonable Employee Compensation:The financial provisions of these Bylaws also reflect two important values with regard to employee compensation: 1) Employee compensation is capped with reference to area median wages, in order to prevent Loconomics from providing excess benefits to its employees, and 2) Loconomics strives to pay a market wage to its employees, based on occupation, in order to attract top talent, and in line with the 6th principle of Muhammad Yunus’ Social Business: "Workforce gets market wage with better working conditions.”**
    5. Preventing Commodification and De-Mutualization of Loconomics:Since it is not beyond the realm of possibility that a for-profit company could offer to purchase Loconomics, it is important to acknowledge here that Loconomics intends to avoid this at all costs, opting to manage Loconomics as a commons for the long-term benefit of its Owners and communities.
  2. Sharing Profits. When Loconomics has Net Earnings (defined as the excess of revenues over expenses) for a fiscal year, the allocation of those Net Earnings shall be determined by means of the following steps. By becoming an Owner of Loconomics, all Owners thereby accept the following method of surplus distribution as reasonable and equitable, in consideration of the mission and values of Loconomics:**
    1. Step 1: Determining the Percentage of Gross Income Attributable to Owners.Loconomics shall determine the percentage of total gross income attributable to User Fees and other fees paid to Loconomics by Licensing Partner Owners, Service Provider Owners, and booking fees paid to Loconomics by Clients of Service Provider Owners. User Fees include, but are not limited to, monthly fees and fees paid for a la carte services offered by Loconomics, excluding payment processing fees, background check fees, or other similar fees for services provided by third parties, which do not generate net income for Loconomics. This will not include fees paid to Loconomics by Non-Owner Service Providers (including, but not limited to, User Fees), fees paid by the Clients of Non-Owner Service Providers, fees from Non-Owner Licensees, and other sources of income not attributable to the patronage of Owners.
    2. Step 2: Separating Owner Net Earnings from Collective Earnings.Second, the Net Earnings shall be divided into two pools - Owner Net Earnings and Collective Net Earnings. Owner Net Earnings shall be Loconomics’ total Net Earnings multiplied by the percentage of total gross income attributable to business done with Owners, as determined in Step 1, above. All Net Earnings not determined to be Owner Net earnings shall be considered Collective Net Earnings.
      1. To illustrate Step 1 and Step 2: Imagine that during one year, Loconomics receives $10 million in payments from Users of the Platform. Of this $10 million, $8 million is derived from User Fees and other fees paid to Loconomics by Licensing Partner Owners, Service Provider Owners, and booking fees paid to Loconomics by Clients of Service Provider Owners and $2 million is derived from User Fees and other fees paid to Loconomics by Non-Owner Service Providers, their Clients, and Non-Owner Licensees. Using an 8:2 ratio, if Loconomics has $1 million in Net Earnings at the end of a fiscal year, then $800,000 of the Net Earnings shall be considered Owners Net Earnings, and $200,000 shall be considered Collective Net Earnings.
    3. Step 3: Feeding the Cooperative’s Indivisible Account.Loconomics shall maintain an accounting of funds called the Indivisible Account. Funds in the Indivisible Account may be reinvested in Loconomics, used for the purpose of improving and growing Loconomics, used for regular Cooperative expenses, used to finance the development of other cooperatives, or donated to charitable, educational, or social welfare organizations. Except upon sale or dissolution of Loconomics, funds in the Indivisible Account may not be distributed as dividends or otherwise paid to Owners of Loconomics. In Step 3, Loconomics shall allocate the following to the Indivisible Account:
      1. Allocating all Collective Net Earnings to the Indivisible Account: All Collective Net Earnings shall be allocated to the Indivisible Account.
      2. Allocating a Portion of Owner Net Earnings to the Indivisible Account:In addition, and if applicable, Loconomics shall allocate a portion of Owner Net Earnings to the Indivisible Account, but only as follows:
        1. From 2016 to 2020, Owner Net Earnings shall be credited to the Indivisible Account as necessary to bring the year’s contribution to the Indivisible Account up to 50% of the year’s Net Earnings. The purpose is to reserve Loconomics’ early earnings to ensure that Loconomics can meet its obligations when its initial promissory notes go into repayment in 2016.
        2. Beginning in 2020, Owner Net Earnings shall be credited to the Indivisible Account as necessary to bring the year’s contribution to the Indivisible Account up to 30% of the year’s Net Earnings.
    4. Step 4: Feeding the Owners’ Participatory Budgeting Account. The Board may, at its discretion, allocate a portion of the Indivisible Account into an account called the Owners’ Participatory Budgeting Account. In this case, the Board shall establish a participatory budgeting process through which Owners can, within boundaries defined by the Board, propose initiatives and vote on how the funds will be spent or donated using a platform such as CoBudget.
    5. Step 5: Calculating Each Owner’s Portion of the Owner Net Earnings: Owner Net Earnings not allocated to the Indivisible Account or Participatory Budgeting Account shall be apportioned – but not necessarily distributed – to Owners in proportion to each Owner’s “Patronage Units.” For Licensing Partner Owners and Service Provider Owners, every $1 paid to Loconomics in the form of User Fees and other fees will equal one Patronage Unit. For each Employee or Independent Contractor Owner, every six hours of work for Loconomics shall equal one Patronage Unit. The amount apportioned to an Owner may also be referred to as a “Patronage Dividend.”
      1. To illustrate: After Steps 1-4, if $500,000 in Owner Net Earnings remain to be allocated among Owners, and if the total Patronage Units of all Owners is 1,500,000, then an Owner with 300 Patronage Units will get a Patronage Dividend of $100 (300/1,500,000 x $500,000).
    6. Step 6: Making Cash Distributions and Capital Account Allocations to Owners: No later than 8.5 months after the close of the fiscal year, the Board shall decide, based on the financial needs of Loconomics, if and what portion of each Owner’s total Patronage Dividend shall be distributed to the Owner as cash and what portion shall be allocated to the Owner’s Capital Account:
      1. Cash Distributions:Any cash dividends must be paid no later than 8.5 months after the close of a fiscal year. Any distribution made in cash may also be made in the form of an account credit for use on the Platform, if the Owner consents to receiving the dividend in this way.
      2. Capital Account Allocations:Any portion of the Patronage Dividend not distributed as cash to an Owner shall be allocated to the Owner’s Capital Account no later than 8.5 months after the close of the fiscal year. The Owner’s Capital Account represents the value of an Owner’s interest in Loconomics, because this is the amount that will likely be distributed to the Owner if they leave, and which shall otherwise be distributed to the Owner over time in the form of cash dividends. The amount in an Owner’s Capital Account also represents the Owner’s re-investment in Loconomics, since the amount shall be available for operating expenses of Loconomics and has the potential to be lost.
    7. Step 7: Deciding the Income Tax Status of Money Allocated to Owners’ Capital Accounts. When allocating Patronage Dividends to Owners’ Capital Accounts, the Board shall decide whether to give Owners a Qualified Written Notice of Allocation (“Qualified WNA”) or a Non-Qualified Written Notice of Allocation (“Non-Qualified WNA”), or a combination of the two. By becoming an Owner of Loconomics, the Owner thereby consents to receiving any written notices of allocation in electronic form.
      1. Qualified WNAs:A Qualified WNA is called “qualified” because, under Subchapter T of the Internal Revenue Code, it qualifies as tax-exempt or as a tax-deductible expense for Loconomics. With a Qualified WNA, the Owner shall pay tax on the funds allocated to the Owner’s Capital Account, even though the Owner did not receive those funds as cash. In order to issue a Qualified WNA, Loconomics must distribute at least 20% of an Owner’s total Patronage Dividend in the form of cash, as required by Subchapter T, in order to ensure that the Owner has cash available to pay taxes on the portion of the funds allocated to the Owner’s Capital Account.
        1. Owners’ Covenant to Declare Income for Tax Purposes. By becoming an Owner of Loconomics, the Owner thereby agrees that they shall take into account on their income tax return any patronage dividends which are made in qualified written notices of allocation (as defined in 26 U.S.C. Section 1388) at their stated dollar amounts in the manner provided in 26 U.S.C. Section 1385(a) for the taxable year in which the Owner receives such written notices of allocation.
      2. Non-Qualified WNAs:A Non-Qualified WNA is called “non-qualified” because, under Subchapter T, it neither qualifies as tax-exempt nor as a tax-deductible expense for Loconomics. With a Non-Qualified WNA, the Owner shall be notified of the amount allocated to the Owner’s Capital Account, but the Owner shall not owe taxes on the amount of a Non-Qualified WNA unless and until the amount is distributed as cash. Loconomics shall pay tax, at the time of the allocation, on amounts allocated through Non-Qualified WNAs. Later, when Loconomics distributes those amounts as cash to Owners, Loconomics can then treat the distributions as tax-deductible business expenses.
    8. Step 7: Periodic Redemption of Owner Capital Accounts. Loconomics shall aim to pay out in cash (or in the form of credits that may be used to pay User Fees) to the Owners all funds credited to their Owner Capital Accounts within three years of the date they were first credited, unless such funds were lost as a result of company losses.
    9. Step 8: Distribution of 1099-PATR Forms. By January 31 of each year, Loconomics shall provide each Owner with a 1099-PATR form describing patronage dividends paid in cash or allocated to the Owner’s Capital Account during the prior fiscal year. By becoming an Owner of Loconomics, an Owner thereby consents to receiving the 1099-PATR in electronic form.
  3. What Happens upon Termination of an Ownership: When an Owner’s Ownership Interest is terminated – whether by voluntary resignation, automatic termination, or involuntary termination – any amount in the Owner’s Capital Account shall be converted into a debt by Loconomics payable to the Owner within three years (though preferably much sooner). In addition, Loconomics shall, within 8.5 months of the close of the fiscal year in which the Ownership Interest was terminated, add to Loconomics’ total debt to the Owner the full amount of any Patronage Dividend due to the Owner from that year. The Owner shall be liable for any charges, dues, or other obligations that the Owner owes Loconomics and which were incurred before the termination or resignation, and Loconomics may offset its debt to the Owner with such charges, dues, and obligations. Unless the Loconomics Board of Directors adopts a resolution or executes Terms of Service stating otherwise, a resigning Owner shall have no right to a refund of their User Fees.
  4. Employee Compensation Policy. Employee compensation will be set with regard to the following rules:
    1. Capped Salaries: Employees of Loconomics may not be paid a base gross salary that is more than 3.5 times the median per capita wage for all occupations in the region where the employee is employed, as calculated by the Bureau of Labor Statistics in its most current Metropolitan and Nonmetropolitan Area Occupational Employment and Wage Estimates reports. For example, as of May 2015, the median hourly wage for all occupations in the San Francisco-Redwood City-South San Francisco, CA Metropolitan Division is $26.34. At that time and in that region, a Loconomics employee could not be allowed to make more than $92.19 per hour or $191,755 per year.
    2. Paying Market Rate Salaries:Employees of Loconomics will, when financially feasible, be paid market salaries for their respective roles, as determined by the Bureau of Labor Statistics in its most current Metropolitan and Nonmetropolitan Area Occupational Employment and Wage Estimates reports, based on the median wage for the particular category of occupation and in the region in which the employee is employed. For example, as of May 2015, the median hourly wage of a Software Developer in the San Francisco-Redwood City-South San Francisco, CA Metropolitan Division area is $55.44. In sum, using the example in this paragraph and above, Loconomics would strive to pay any software developer employees at least $55.44 per hour, but no more than $92.19 per hour. If the Employee is being hired to fulfill multiple roles, a blended average of median wages for multiple applicable occupations will be used.
    3. Non-monetary Benefits: To attract and maintain top talent, Loconomics will aim to offer competitive benefit packages, as described in any policies to be adopted by Staff Trustees.
    4. Independent Contractor Pay:Independent contractors of Loconomics will, when financially feasible, aim to pay 1.3 times the median wage for their respective occupation, as determined by the Bureau of Labor Statistics in its most current Metropolitan and Nonmetropolitan Area Occupational Employment and Wage Estimates reports for the region in which the independent contractor is hired, with a cap of 3.5 times the median wage for all occupations.
    5. Financially Feasible:Salaries, non-monetary benefits, and independent contractor pay must be within the feasibility of the then-current financial performance of Loconomics, as determined by Staff Trustees, under the oversight of the Board. A review of feasibility will be made before any new hiring process begins.
    6. Changing Any Provision of this Section: The provisions of this Section 43 of the Bylaws may not be changed unless approved by a majority of all Owners, a majority of all Directors, and additionally approved by the majority of the following individuals, if living: Joshua Danielson, Janelle Orsi, and Fernando Gago.14 This Section is intentionally difficult to change, in order to prevent powerful stakeholders in Loconomics from pressuring the Cooperative to pay excessive or below-market compensation.
  5. Dissolution or Sale of Loconomics.
    1. Loconomics is Not for Sale: Loconomics shall not, under any circumstances, accept an offer by any person or corporation to purchase Loconomics and/or the majority of its assets for the purpose of operating Loconomics under a stock corporation or other conventional for-profit company. It shall never be considered a violation of a Director’s fiduciary duty to vote against a buyout of Loconomics. In the event that a court is asked to consider whether this section of the Bylaws creates an unreasonable restraint on alienation, the court should analyze this restraint in consideration of the values and mission of Loconomics, along with a view toward the current economic conditions in the world where the vast majority of wealth is controlled by a relatively small number of corporations and individuals. Loconomics aims to grow the wealth and economic stability of the many, and therefore consciously aims to restrain its ability to contribute to the consolidation of wealth by freely selling Loconomics to a high bidder. In addition, a court should consider the following affirmation: By becoming an Owner of Loconomics, an Owner thereby affirms that it is in the Owner’s interest to be part of a cooperative that is stewarded to provide for the needs of Owners in the long term, and the Owner therefore affirms that any restraint on the ability to sell Loconomics is reasonable and in the interest of the Owner.
    2. Distribution of Proceeds:
      1. Distribution to Past and Current Owners:Upon liquidation, dissolution, sale of the entity, or sale of the assets of Loconomics, any assets left after payment of all debts and after payment Owner Account balances to Owners, shall be distributed to all persons or entities who are current or living past Owners in proportion to the total number of months they were an Owner.15 Prior to making such distributions, Loconomics shall mail each eligible current and past Owner a Notice of Liquidation and Distribution, requesting that the Owner respond and provide an address to which or method whereby Loconomics should submit payment. All current and living past Owners have the responsibility of updating Loconomics with their current contact information. No distribution need be made to any Owner who fails to acknowledge the receipt of Notice of Liquidation and Distribution in a timely manner. Said notice shall be deemed sufficient if sent to the last known email address(es) provided by the Owner to Loconomics, at least 60 days before distribution.
      2. Distribution to Nonprofits:However, if the dollar amount of such distributable assets exceeds 1,000 times the number of current and living past Owners, then any proceeds beyond that amount shall be distributed to at least ten and no more than one hundred nonprofit organizations selected by current Owners in a participatory selection process to be created and administered by the Board. The purpose of this provision is to prevent Owners from selling their Cooperative in order to get a quick cash payout averaging more than $1,000 per person.
    3. Changing Any Provision of this Section: The provisions of this Section 44 of the Bylaws may not be changed unless approved by a majority of all Owners, a majority of all Directors, and additionally approved by the majority of the following individuals, if living: Joshua Danielson, Janelle Orsi, and Fernando Gago.16 This Section is intentionally difficult to change to prevent a corporate buyout of Loconomics.
14. See section 12331 of the California Corporations Code. ↩
15. See sections 12653, 12655, and 12656 of the California Corporations Code. ↩
16. See section 12331 of the California Corporations Code. ↩

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