Phase

Verständnis schaffen

Content Type

Einzelarbeit - lesen

Activity Time

25-30 Min

°Facette

Verständnis

Guiding question

What are the difference and similarities between other legal forms and concepts (eg. B Corp) with steward-ownership?

B Corp, cooperatives, and non-profit organizations

A differentiation of various approaches

In recent years (and before that), several organizations and movements have emerged that offer alternative business approaches and innovative ways of thinking business, ownership and financing. However, these organizations and movements differ in their motivation and approach and legal implications. This document aims to provide an overview of how steward-ownership differs from cooperatives and other (country specific) legal forms such as Benefit Corporations, as well as from the Economy for the Common Good (ECG) and B Corp Certification approaches, and how these different approaches can be combined.

What constitutes steward-ownership?

Steward-ownership involves a shift in a company's ownership structure, wherein the principles of self-determination and asset-lock are enshrined in law. This change alters the relationship between power and capital within the organization. No longer does the paradigm apply that those who contribute the most capital automatically hold the most control over the company. Instead, power and control over the company are vested in individuals who are connected to the organization and who possess the necessary skills. The value created by the company no longer primarily serves the shareholders, but serves the purpose of the company. This legally binding arrangement is intended to be long-lasting and cannot be easily reversed.

Under steward-ownership, there is no binding to a specific corporate purpose. Instead, the entrepreneurs have the freedom to develop and pursue a corporate purpose that is appropriate for the respective 'stewards.' At the same time, steward-ownership does not inherently dictate whether a company must act in a particularly sustainable or ethical manner. Instead, it addresses the root of decision-making (power and money), beginning with the legal structure of the organization and the underlying motivations that guide corporate decision-making. Like any form of ownership, steward-ownership starts with the company’s framework for action and incentive structures that are built into the organization.

Steward-ownership and the non-profit status fundamentally differ from each other on several accounts.

• The non-profit status does not influence who can become shareholder of the legal entity. This means that the principle of self-determination (the majority of voting rights are always held by people closely connected to the company) implemented in steward-ownership is not automatically upheld.
• There is a form of asset lock and purpose-orientation in a non-profit organization, as the assets and profits of the organization are only to be used for charitable purposes. However, this is only a tax status, not a legal obligation in itself. If the organization does not uphold the regional obligations that secure their tax status as a charitable entity, they lose this classification. This usually results in additional tax payments. With the loss of the charitable status, the asset lock and purpose-orientation is lost. Therefore, there is no legally secured asset lock in the long run. Of course, in some cases the additional tax payments might be prohibitively high, resulting in a factual asset lock.
• Additionally, the non-profit status limits the usability to companies that pursue charitable purposes. This is different from steward-ownership which is open to companies with all different types of purpose, independent of the charitable status.
• Steward-ownership does not give any tax benefits.

Steward-ownership as a structure can be used by and combined with the charitable status. The operational entity could for example be charitable. Additionally, in many foundation and trust models, the owning entity is charitable.

Steward-ownership and B Corporations

B Corporations, also known as B Corps, are companies that strive to have a positive impact on society and the environment through their business model. B Corps undergo a transparent certification process by the non-profit organization B Lab. To become certified, they must demonstrate their impact on employees, customers, the community, and the environment in the B Impact Assessment. The company's corporate structure, stakeholder relationships, value chain, and commitment, among other things, play a role. Companies that have scored well (with a minimum score) in this assessment are certified as B Corps. The information provided in the B Impact Assessment is publicly available, and the certification process is transparent. The governance structure and bylaws are also adapted for certification to include stakeholders and ensure the company's purpose. The certification is valid for three years, after which the assessment and verification must be repeated, otherwise, the B Corps certification is lost.

Compared to steward-ownership, the B Corps model strives to make a direct statement about how socially beneficial the company is, or should be, in terms of corporate structure, purpose, and value chain. This is verified through the B Impact Assessment – but the certification can be dropped if the assessment does not meet the required standards. The B Corps model does not imply changes on the ownership structure of the company, which is a difference compared to steward-ownership. Another difference is that the upholding of a B Corps certification is voluntary, so there is no obligation if the company's strategy changes while steward-ownership is a long-running legal commitment.

The different approaches can be combined without any problems. Any certified B Corp can implement steward-ownership, and any company in steward-ownership can seek B Corps certification. In doing so, steward-ownership can have a positive impact on the scores in the B Impact Assessment. Many steward-owned companies are also B Corp certified.

Steward-ownership and the Economy for the Common Good

The Economy for the Common Good (ECG) and steward-ownership can be combined effectively, but they are fundamentally different approaches. The ECG has developed a catalog of criteria that companies can use to evaluate themselves and their engagement in various areas. The result is a Common Good Balance Sheet that is reviewed by independent auditors and then published for transparency.

The following areas are included in the Common Good Balance Sheet: suppliers, customers, owners, financing, employees, and the social environment. A detailed description of the Common Good Matrix can be found here.

Compared to the ECG, steward-ownership is a binding change in the ownership structure of the company. There are no rules or guidelines for what a company should or should not do, only that the ownership structure ensures the two principles. Like B Corps, the lever for change in the ECG is voluntary certification. This certification is not limited to ownership but it does include it as one of many issues. In doing so, steward-ownership can have a positive impact on the scores in ECG Matrix.

The lever for change lies in measuring output, evaluating how well the company performs in various categories, and its measurement and ranking. In contrast, steward-ownership starts at the ownership level as the base of corporate behavior.

The two approaches, despite their differences, can be combined well or complement each other. Many steward-owned companies are also ECG certified.

Steward-ownership and Benefit Corporations

The Benefit Corporation is a for-profit legal entity in the United States and some other countries that has a legally defined corporate goal of having a positive impact on society, employees, the community, and the environment. While Benefit Corporations may distribute profits to their shareholders, they are also subject to transparency obligations regarding their ESG performance. In some US-states, the status of a Benefit Corporation may be revoked; also, a Benefit Corporation may convert back to another corporate form.

Italy has also introduced its own version of the Benefit Corporation as a legal form, following the U.S. model.

In comparison to steward-ownership, the benefit corporation depends on defining the pursuit of purposes beyond shareholder value, such as public welfare, as a legal corporate purpose. Steward-ownership, on the other hand, takes a different approach by changing the ownership structure at the core of the corporation for other incentives and motivation of decision-making. Shareholder value and profits are not the goal of the company anymore but a means to a purpose.

Steward-ownership is a legally binding commitment for the long term, while it is possible to change out of benefit corporation status.

Cooperatives

Cooperatives are legal entities owned and democratically controlled by its members. They are usually established to serve the economic, social and cultural needs of its members. The following table shows the main differences between cooperatives and steward-owned companies.

Summarized, cooperatives do not automatically legally implement the principles of steward-ownership (self-determination / purpose-orientation). While it depends on the regionally specific attributes of the cooperative legal form, in many jurisdictions, company shares or business decisions held by the cooperative can theoretically be sold by decision of the cooperative members with economic benefit for the cooperative members. Also, dividends can often be distributed to cooperative members. While the principles of steward-ownership could be included in the legal statutes of the cooperative, the statutes could be revised again by the cooperative members at a later point in time. However, if the principles of steward-ownership are written into the cooperative statutes and can only be changed if all members agree, with a large number of cooperative members there is a sort of social security in the long run. Similarly, there are ways to combine veto-share, foundation or trust models with cooperatives.

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specific international models

Regionally specific legal forms or add-ons

Société à Mission (France)

A Société à Mission, or "company with a mission" in English, is a specific legal form of business organization in France. The primary objective of a Société à Mission is to balance profit-making with pursuing a predefined social, environmental, or societal mission.

A Société à Mission is required to have a clear and specific mission statement, outlining its social or environmental goals. This mission statement is legally binding and must be included in the company's bylaws. It goes beyond maximizing shareholder value and takes into account broader social and environmental concerns. An independent third party, known as a "commissaire à la Mission," is appointed to ensure the company's compliance with its mission and report on its progress. A Société à Mission can be structured as a variety of legal entities, including limited liability companies (SARL), joint-stock companies (SA), or cooperatives (SCOP).

Can a Société à Mission be classified as a steward-owned company?

In contrast to steward-ownership, a Société à Mission enshrines its mission in its bylaws whereas a steward-owned company enshrines the purpose-orientation on the ownership level. A Société à Mission does not include a restructuring of the corporate ownership structure; shareholders still can sell the company and control over it, realize the company value and receive dividends. If a Société à Mission wishes to alter its status and no longer operate under the Société à Mission framework, it can do so by amending its articles of association and adopting the legal structure of a regular limited company – a clear distinction to steward-ownership. Both principles of steward-ownership – (1) the assets are locked and (2) the voting shares remain within the company – are therefore violated.

CIC - Community Interest Company (UK)

The CIC (Community Interest Company) limited by guarantee is a specific legal form created in the UK. It is characterized by a 65% comprehensive asset lock (can be up to 100%) and limited liability. The CIC was developed as an alternative to purely nonprofit organizational forms and has a wide range of applications across various industries. It is open to for-profit enterprises that have a commitment to benefiting the community.

The CIC limited by guarantee has been widely utilized, with approximately 22,000 companies registered under this form (2022). These companies include social enterprises, charitable organizations, clubs, associations, and community projects. The CIC ensures that profits and assets are dedicated to the community and cannot be distributed to shareholders.

The CIC has clear regulations and safeguards in place to prevent the misuse of assets. It requires the involvement of a regulator and specifies rules for the continuation of the asset lock in the event of conversion or liquidation. Conversion to nonprofit organizations is allowed. In case of liquidation, the remaining assets after repaying initial contributions are transferred to another institution with an asset lock, as specified in the company's articles of association.

In terms of financing, the CIC limited by guarantee does not provide financial shares, and therefore, only debt financing instruments at market terms are applicable. The British legislation has set a cap on interest rates for performance-based debt instruments, limiting them to a maximum of 20% of the loan amount. The CIC's financing structure ensures that the commitment to the community is not undermined.

Can a CIC be classified as a steward-owned company?

It depends. A CIC with the obligatory 65% asset lock violates the principle of a full asset lock that applies for steward-owned companies. However, a CIC can decide to install a 100% asset lock and would therefore be characterized as a steward-owned company - as long as it complies with the principle of self-determination with the majority of voting shares remaining within the company. In contrast to other legal forms for steward-owned companies that can be established for any commercial purpose, the CIC limited by guarantee is reserved for those companies that have explicitly dedicated their statutory purpose to a benefit for the community.

svb-Aktiebolag (Sweden)

The svb-Aktiebolag, which stands for "Aktiebolag med vinstutdelningsbegränsning" in Swedish, is a specific legal form introduced in Sweden in 2006. It translates to "Limited Liability Company with Profit Distribution Restriction" in English. The svb-Aktiebolag is designed for companies that dedicate their activities to purposes other than pure profit-making for their shareholders. It ensures that profits generated by the company remain within the organization and are not distributed to shareholders as dividends.

Key features of the svb-Aktiebolag include:

1. Asset Lock: The svb-Aktiebolag has an irreversible asset lock mechanism, meaning that profits cannot be distributed to shareholders, and the company's assets must be retained within the organization.
2. Ownership Structure: The ownership structure of the svb-Aktiebolag involves shareholders who act as capital contributors. The company's capital contributors are treated as guarantors rather than traditional shareholders with equity stakes.
3. Purpose: The svb-Aktiebolag is suitable for companies that operate with a purpose other than primarily shareholder value and/or profit maximization. It is commonly used by organizations in the social sector or those that were previously publicly funded and focus on serving the common good or community interests.
4. Conversion and Liquidation: The svb-Aktiebolag can only convert into other legal forms with comparable asset binding or into non-profit forms. In the case of liquidation, after settling debts, any remaining assets are transferred to other entities with similar asset binding.
5. Regulation and Supervision: To ensure compliance with the asset lock and purpose, the svb-Aktiebolag is subject to regulation and supervision. There are mechanisms in place to oversee the company's adherence to its defined purposes and to prevent any attempts to bypass the asset lock.
6. Limited Financing Options: While the svb-Aktiebolag allows equity financing, dividend distributions are restricted. Dividends can only be paid in the form of capped interest rates on the contributed capital.

Despite being a legal form with comprehensive asset binding, the svb-Aktiebolag has seen relatively limited usage in Sweden compared to other legal structures. This might be due to Sweden's liberal foundation laws, which provide a simpler way to achieve similar asset binding for entrepreneurial initiatives, making it less common for companies to adopt the svb-Aktiebolag legal form. Another reason could be the very restrictive options for financing. As of the text's writing, there were approximately 195 companies operating as svb-Aktiebolag in Sweden.

Can a svb-Aktiebolag be classified as a steward-owned company?

Yes, regarding the asset lock principle a svb-Aktiebolag is steward-owned by nature. The company however has to also install mechanisms keeping the majority of the voting shares within the company.

Employee ownership trusts (EOT) (United Kingdom)

An Employee Ownership Trust (EOT) is a unique and innovative ownership structure introduced in the United Kingdom through the Finance Act 2014. Other countries recognize similar forms of EOTs such as the Perpetual Purpose Trust (USA). It is designed to promote employee engagement, productivity, and long-term business sustainability by giving employees a significant stake and say in the company they work for.

1. Ownership Structure: In an EOT, a trust is created, and the company's shares are transferred to this trust. The trust holds the shares on behalf of the employees as beneficial owners. The employees become indirect owners of the company, and their interests are represented by the trustees of the EOT.
2. Employee Participation: EOTs enable employees to have a real sense of ownership and involvement in the company's decision-making process. This involvement is often through an Employee Council or Employee Forum, where employees can provide input and influence company strategies and policies.

A company can transition to an Employee Ownership Trust by restructuring its ownership and handing its shares into the trust. In the case that compensation is necessary for the shares, this can be funded by the company itself or through external financing.

Employee Ownership Trusts are particularly attractive for:

• Succession Planning: Business owners looking for a smooth and inclusive succession plan can opt for an EOT. It provides an exit strategy for owners who want to pass on their business to employees while ensuring its continued success.
• Employee Engagement: Companies with a strong focus on employee engagement and a desire to align the interests of employees and shareholders often find EOTs appealing. The model fosters a sense of ownership and encourages employees to contribute to the company's success.
• Long-Term Stability: EOTs can benefit businesses seeking stability and continuity. The long-term commitment of employees to the company's success can help create a resilient and sustainable business.

Once a company becomes an Employee Ownership Trust, the shares are held in the trust for the benefit of the employees. The assets are "locked" in the sense that they cannot be sold to external buyers, ensuring that the company remains employee-owned.

As for voting rights, the trustees of the EOT usually act out the voting rights on the shares in the trust. However, some EOT structures might grant voting rights directly to employees, allowing them to participate in significant decisions that impact the company.

Can an EOT be classified as a steward-owned company?

It depends! A trust structure is irreversible so once it is created, the assets cannot be taken out any more. In addition, the voting shares are held by employees. However, it must be ensured that this asset lock includes 100% of the companies’ shares and that the majority of voting rights is put into the trust, not merely a fraction.

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