T-Corporations

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Janelle Orsi:

"There is only one way to ensure that a company will make decisions in the interests of the people it serves: Put those people in control of the company. So let me introduce the T corporation. Most business-savvy people know that there are S corporations (Subchapter S of the Internal Revenue Code) and C corporations (Subchapter C), but almost no one thinks about forming a T corporation (Subchapter T). But T corporations have been around for a long time, and they have a major benefit of not paying tax if 1) they are governed democratically by the shareholders (i.e., everyone gets one vote in the election of the board, regardless of share value) and 2) the earnings of the company are distributed to the shareholders on the basis of how much they patronize (i.e. do business with) the company.

Actually, no one ever calls them “T corporations.” But it might be worth calling them that, because it’s basically a way of saying “cooperative” without the cultural baggage that comes with the word “cooperative.” Cooperatives might otherwise make people think of hippies, natural food stores, farmers, and crowded student housing.

But, at the core of cooperatives is a very simple legal concept that turns the conventional business structure on its head. In a cooperative, money doesn’t buy votes in board elections and money doesn’t buy future profits. Rather, each member of the cooperative gets a vote and earns money based on the efforts they contribute. There is no single individual or group driving the company for their own profit. Many of the incentives for exploitation are simply absent in cooperatives.

If Lyft were a user-owned cooperative, it would be more apparent that Lyft operates simply to provide technology and payment processing to the users, and it will look less like drivers are working for and generating profits for Lyft. That will be a key distinction in the current lawsuits, because the appearance that drivers are working for Lyft is what prompted the lawsuits.

Simply being a cooperative won’t immunize Lyft from employment-related lawsuits like this one. We have the Supreme Court’s ruling in Goldberg v. Whitaker House Cooperative, Inc. to demonstrate that point, in case any readers would like to geek out by reading the case law next to the complaint filed against Lyft. But, if Lyft were a cooperative, there would be no one at the top pulling the strings for their own profit benefit. Lyft would be much less likely to devolve into an employer with the primary purpose of profiting from the labor of drivers. With users electing the board, the company would have an incentive to create economic empowerment for users and their communities, not to create economic dependence.

As a cooperative, Lyft would charge fees to users for the use of the technology, but only as much as it would need to cover operational costs. If Lyft charges more than was needed for the year, it would give users what is called a patronage dividend, which is tied to how much money each user paid to or earned for Lyft. In the end, all earnings go back to the users, and not toward the purpose of making rich people richer. The sharing economy companies could draw inspiration from REI, the recreational equipment retailer. REI is a consumer-owned cooperative, meaning that profits are distributed back to the customers on the basis of how much each customer purchased.

Whether Lyft should be a cooperative owned by drivers, riders, or both is an interesting question. That decision would likely be guided by considerations such as: Who does the company most care about benefiting? Is one stakeholder group vulnerable to harm or exploitation if another stakeholder group calls the shots? Which stakeholder group would be most likely to make decisions that benefit the whole community and remedy social problems?

If Lyft’s highest priority is to revolutionize transportation and reduce carbon emissions, then I would say that both drivers and riders should control the company. Revolutionizing transportation would require the support and collaboration of everyone who moves. But if Lyft’s highest priority is to create opportunities for drivers to make a living, then I think drivers should control the company. Deciding whether something should be a worker or consumer cooperative – or both – could be the subject of many future discussions and articles.

Now for the question of how to convert sharing economy companies to cooperatives. Lyft, Airbnb, TaskRabbit, and similar companies are now worth a LOT of money. But, if you think it’s too late for them to convert to cooperatives, remember that the value of the company is totally dependent on the customers. People are increasingly coming to understand that cooperatives will be at the core of a more just and sustainable economy. Smart consumers might eventually boycott any privately owned sharing economy company that isn’t on a path toward cooperative conversion. Losing users means losing company value.

To convert the sharing economy companies into cooperatives, each company and its shareholders could voluntarily enter into a legally binding agreement to begin the process of selling the company to its customers as a cooperative, even if it takes 10 years or more to complete the buy-out. The buy-out could happen in one of at least two ways: Users could form a cooperative corporation to slowly redeem the shares of the company, or the company could internally create a new class of shares for future co-op members. There are a variety of considerations involved in structuring the transition, and while this has mostly been done by small companies like Select Machine, it is doable even with large companies like Airbnb.

Could or would each of the 2.1 million registered users of Airbnb come up with about $120 per year to complete the buy-out of a $2.5 billion dollar company in 10 years? Maybe. The number of users is growing rapidly, which would reduce the buy-in cost for each user. And I, for one, would probably encourage everyone I know to buy in, if Airbnb took the revolutionary step of converting to a cooperative.

Cooperative conversion could be a double win for current Airbnb shareholders, who will lock in a substantial return on their investments, and play a key role in a movement toward a more just and resilient economy.

So this is a call to action for the companies, for their customers, for advocacy organizations like Peers, Collaborative Lab, and for anyone feeling hopeful about the sharing economy: Commit to a sharing economy. Commit to cooperatives. Think of these two commitments as one and the same." (http://www.shareable.net/blog/the-sharing-economy-just-got-real)