Spolu 1: Introduction

For half of my 64-year life, I had thought today's business models were sufficient for our societies to function well. I had my own small business, where I learned a lot about management and corporate affairs. Although this business failed, I maintained that that the structure was still sound. We should carry this model into the future.

But as I was formulating my thoughts on my advanced democracy (Tiered Democratic Governance), I was starting to see that the future also needed an advanced business model.

Not one just to complain, I decided to "vote with my feet." I closed my personal bank account with one of Canada's chartered banks-even though that bank had served me well. I also became a member in the fuel co-operative. I've been with these two co-operatives ever since, getting a small return on my purchases every year.

These two co-operatives are customer-owned co-operatives. Profits go back the customers.

I have heard of employee-owned co-operatives. But I have no experience with these kinds of businesses. But this got me thinking. Is it better for a co-operative be customer-owned or employee-owned? I could see advantages to both. But what about the original investors? Why should they be shut out of the co-operative's future?

After much pondering, I came with an idea of an advanced co-operative, where all the stakeholders are the owners. I enhanced this idea over the years, but it has mostly stayed in my head. In late 2023, I first started putting the "spolu" concept on paper.

The Spolu Draft

Please be patient with this paper. It is a work in progress. I consider it my fourth draft.
  1. This edition will have typos and grammar gremlins.
  2. Some sentences and paragraphs will be massaged later.
  3. New ideas are likely to come to me later.
  4. A professional editor will be hired towards the end of this project, maybe three more drafts from now.
If readers can overlook my writing deficiencies, I would appreciate comments on this advanced business model. So leave some constructive criticism. Your comments could lead me to taking the fifth draft idea in a better direction.

A human, not an AI text generator, wrote this book.(More Info)

Follow Dave & the TDG on Mastodon:

@davevolek; #tiereddemocraticgovernance


Back to Dave Volek's Inventions

Spolu 2: Corporations vs. Cooperatives

The Corporation

Much of the world's business is conducted under the concept of "the corporation." A corporation is a legal entity that buys goods and services, sells good and services, hires employees, owns assets, takes on debt, and distributes profits to the shareholders.

The shareholders are the owners of the corporation. They have invested in the corporation with the intent of receiving future profits. The shareholders can be individuals, individuals pooling their investments as a mutual fund, other corporations, and government.

In bigger corporations, the shareholders usually do not take a big role in management of the business. Rather they hire a manager, often called a "chief executive officer." Once a year, the shareholders decide whether to retain or release this manager.

In smaller corporations, the shareholders are often the managers of the business. Sometimes such a business has just one shareholder.

Some corporations are operating businesses, with a publicly known name and functions.

Other corporations are mostly owning shares in other corporations. Holding companies, shell companies, and off-shore companies are terms used to describe these businesses. Their primary purpose is to shuffle money to minimize paying taxes. Another purpose is to obscure the actual owners. Sometimes the web of ownership is quite convoluted-and difficult to find the true owners.

The Co-operative
My first experience with a co-operative was the Alberta Wheat Pool. My father was our community's local Pool delegate for about a decade. Once a year, he went to a convention in Calgary to vote on matters for farmer members of this co-operative.

The Alberta Wheat Pool was formed in the 1930s. Prairie farmers were frustrated at how the few grain companies and fewer railroads could monopolize the product of 100,000 independent farmers. By coming together, the farmers formed a big enough block to give them serious bargaining power.

In essence, the Wheat Pool broke the monopoly of profits in the grain industry. Many farmers were able to rise above a destitution income.

Co-operatives provide a more organic, altruistic approach to business. Co-operatives give the impression of being motivated by service to their membership and not so much about profit.

However, co-operatives still need to think like a business. They compete directly with the corporations. If the co-operatives' prices are too high or employees are paid too much or not managed well, the co-operative can fail. It seems the goodwill of co-operative ownership is not much of an advantage in the world of business as evidenced by the world having many more corporations than co-operatives. The profit motive is still a strong motivator for business success.

As much as we may desire more co-operatives, it seems difficult to start, sustain, and advance this business model. Something else is needed. Something beyond our current understanding of co-operatives.

Spolu 3: The Spolu Model

Briefly stated, the spolu is an advanced co-operative where profits are distributed between the investors, employees, customers, suppliers, philanthropy, and re-investment. More detail is coming in future articles.

This is a wider scope than our traditional understanding of co-operatives. Hence, I gave this concept a new name.

"Spolu" is the Slovak word for "together." As the reader learns more details of the spolu, there is a lot of "togetherness" in this business model. The stakeholders are much more organically connected.

Spolu 4: The Spolu Stakeholders

Who owns the spolu? How are profits distributed?

In the previous section, I mentioned that the corporate world has the investors as the ultimate decision-makers of the corporation. The co-operative world has the customers or employees as the decision makers.

The spolu is going to bring in these stakeholders together:

  1. investors,
  2. employees,
  3. customers, AND
  4. suppliers AND
  5. philanthropy.

These entities will send their own representatives to the senior management team (analogous to the "board of directors"). These entities will also share the profit distribution.

The Spolu Investors

A new spolu will need seed capital to start. Investors will come together to provide that seed capital. In exchange for their money, the investors will get shares in the spolu.

Spolu investors can be individuals, other spolus, mutual funds, corporations, and government.

Allowing "corporations" to invest in spolus kind of sounds like another version of the corporate world. Well, there is a big difference. These corporate investors will have to share decision making and profits with the other stakeholders. Many corporate investors will not like this arrangement. If so, they should stay away from the spolu network.

As well, the spolu should have a mechanism where investors slowly lose their equity in the spolu. For example, after a 10-year period, the original investors could have about 50% of the spolu shares as they used to have. In this way, the spolu, in the future, can more easily find capital for an expansion. The original investors will not be owners in a "forever sense." I will provide more details on this feature later.

When distributed profits are declared, the investors will share those profits with the other stakeholders, as per the spolu's articles.

The Spolu Employees

All spolu employees will be eligible to receive the spolu's distributed profits and participate in the management structure (as per the spolu's articles).

I recommend that all employees are eligible for the profit distribution, not just the employees who belong to the spolu network.

When distributed profits are declared, employees will get their share, as per the spolu articles. I recommend that the employee earnings of for the past three years should be considered in the calculation. In other words, employees are fully vested after three years of employment.

"Why the three-year period?" you might ask. Well because this recognizes the employee efforts and contribution made from three years ago has had an impact on where the spolu is today: in a position to distribute some profits. I think three years is a good time frame to connect the past with the present.

Employees with less than three years still share in the distributed profits. But because they are not fully vested, they will not be receiving as much of the profit distribution as the vested employees.

Once a year, the employees' distributed profits will be added to their paycheck. It will be considered as regular income, subject to the usual taxes and other payroll deductions.

I am also expecting employees to take a bigger role in decisions of the spolu. While they will be selecting which employees become part of the senior management team, they should also have more decision-making power in their employment sphere. I recommend that spolu managers study various techniques like sociocracy or consultation to give employees more control. In my opinion, spolus should be more horizontal than today's corporations.

I also recognize that many employees have a rather poor understanding of the challenge and difficulties of running a business. I am preparing a business primer for employees to study.

The Spolu Customers

Customers can get a share of the distributed profits. However, only the customers who are members of the spolu network are eligible.

If the spolu customers are individuals, they would have their "spolu card" to record their transaction(s). This will be used later to calculate their share of the distributed profits. If the customer is another spolu, then there would be an accounting mechanism to record all the purchases-and later apply and move the appropriate share of distributed profits to that customer.

Spolus can seek the business of non-spolu members. But the profit distribution will not go to these customers.

The Spolu Suppliers

Putting the suppliers in the profit distribution is a novel concept. Suppliers have an important role in the success of a spolu. So why not include them in the profit distribution?

Similar to customers, suppliers must be members of the spolu network to be eligible for these distributions.

Consider this business relationship. Spolu A is a customer of Spolu B. This makes Spolu B a supplier of Spolu A. So once a year, both spolus do their profit distribution calculation. If both are profitable, they will be sending a little money to each other.

This spolu connection can help a weaker business. If Spolu A is quite profitable, then some of that profit was a result of its business dealing with Spolu B. But if Spolu B is struggling and cannot afford a profit distribution, the profit distribution from Spolu A will help Spolu B's cash flow. In this way, Spolu A is less likely to lose Spolu B as a supplier because of business failure. The connection is more likely to survive.

In another year, the situation could be reversed. In other words, the customer to supplier bond is strengthened in the spolu network.

Remember, "spolu" equals "together." Neat idea, right?

The Spolu Philanthropy

I recommend that each spolu adopt five or so charities as a target for the philanthropic portion of profit distribution. These charities and donations will be public knowledge.

I recommend that the spolu promise each charity at least four years of support. In this way, the managers of that charity can make longer-term plans. Today, so many charities cannot see much past a year of operations because finances come in and go away so easily.

I recommend the philanthropies send one representative to the senior management team. This member will definitely have a different perspective to bring to the decision making.

Spolu 5: The Re-Investment Obligation

When a spolu is profitable, it will be obligated to re-invest some of those profits into buying shares in other spolus.

When a profit distribution is declared by the senior management, a formula will tell how the spolu must invest into other spolus. Funds will be set aside. The senior management team (or a committee) will investigate the share offerings on the Spolu Exchange and select the spolu shares that create a good investment for the spolu. The spolu can acquire shares of customers, suppliers, and even competitors. It can invest in spolus that are not directly connected to them. While the amount is obligatory, the actual shares bought are a choice belonging to the spolu.

When the funds have been used in this way, the spolu's re-investment obligation is complete. The spolu can buy more shares if it wants.

The purpose of the re-investment is three-fold.

First, the investing spolu will be building a future source of regular cash flow. This cash flow would come from profit distributions of the spolus they have invested in. While the cash flows would be small, they could be useful in hard business times.

Second, the spolu shares could be sold if the spolu experiences harder times. This would help the spolu remain solvent and survive to reach better times. The Spolu Exchange will facilitate the sale.

Third, these cash flows would enhance the profit of the spolu, enabling it to declare a bigger profit distribution.

Fourth, the re-investment funds from many spolus ensure there are always buyers entering the Spolu Exchange. In essence, a demand for spolu shares is always there. This will attract investors into the spolu network.

This "forced re-investment" is a novel concept in business. In several ways, it will safeguard and grow the spolu network.

This re-investment obligation becomes the sixth stakeholder that shares in the profit distribution.

Spolu 6: The Profit Distribution

In the previous two sections, I provided more details of the five stakeholders (investors, employees, customers, suppliers, and philanthropy) and re-investment obligations of each spolu. From hereon, I will call the re-investment obligation as another stakeholder. All six will share in the spolu's profit distribution, making all these stakeholders more inter-connected.

A spolu that is not profitable will fail, probably sooner than later. So most spolus will be declaring profit distributions. And this money will be circulating around the spolu network, eventually connecting unrelated spolus together.

At the end of each fiscal year, the financial statements will show the profits of the spolu. I recommend that the spolu articles specify that at least 40% of stated profits be distributed. The senior management team can increase that amount.

For this book, I am recommending that the ratio of profit distribution for these six stakeholders be 1:1:1:1:1:1.

Is this fair? I believe profits will be circling around the spolu network, making the six stakeholders all eventually getting their "fair" share of the profits. This "circling around" should be mathematically modelled to understand its full effect. Alas, I have neither the skills nor time to create this mathematical model. I can just see the profits circling around, and I will leave it to others to quantify that phenomenon.

While I believe the above ratio will be fair, it could be modified. I can see some spolus being better structured with a preference for investors and employees. But for this book, I will just keep the ratio at 1:1:1:1:1:1 to keep things simple.

Spolu 7: Example of a Profit Distribution

In the last section, I briefly suggested how the profits are to be distributed by using the ratio of 1:1:1:1:1:1. For me, such an explanation would be unsatisfactory. To better understand the distribution, I have created a fictitious spolu and given it a simplistic income statement. And from that income statement, I have created some accounting schedules to show how the profit is distributed.

EZ Way Productions is a small business under the spolu network. What it does is not important, but here is its income statement for its last fiscal year. This data will later be turned into calculations for the profit distribution.

EZ Way Productions
Income Statement
  Customer 1*   250,000  
  Customer 2   200,000  
  Customer 3   150,000  
  Customer 4*   50,000  
  Employee 2*   10,000  
  Employee 2*   30,000  
  Employee 3   20,000  
  Investor 3*   250,000  
  Investor 4   40,000 750,000
  Customer PD   10,000  
  Supplier PD   5,000  
  Investment PD   35,000 50,000
  Supplier 1* 150,000    
  Supplier 2* 125,000    
  Supplier 3* 100,000    
  Supplier 4 75,000    
  Employee 1 (22) 80,000    
  Employee 2 (42) 50,000    
  Employee 3 (9) 35,000    
  Employee 4 (56) 25,000    
  Employee 5 (4) 10,000 200,000 650,000
  Pre-tax Income     150,000
  Taxes     30,000
  Post-tax Income     120,000

  • The income statement should be ready about one month after EZ's fiscal year end.
  • PD is income from profit distribution that came from other spolus.
  • The asterix (*) signifies customers and suppliers who belong to the spolu network. They will share in the profit distribution. The others will not.
  • All employees will share in the profit distribution for employees.
  • The number beside each employee is the number of months the employee has worked for EZ Way. This will calculate the in-vesture ratio for each employee.
  • Employees who formally belong to the spolu network and purchased from the EZ Way will share in the customer profit distribution.
  • Pre-tax profits are $150,000. Spolus should pay taxes on these profits-before the profits are distributed.
  • Stated post-tax profits are $120,000. The spolu is obligated to allocate at least 40% of this amount to the profit distribution. The senior management team decides to allocate 50%, so $60,000 goes out of the spolu as profit distribution.
  • This means $10,000 goes to each set of stakeholders: investors, employees, customers, suppliers, philanthropy, and re-investment obligation. Remember this spolu ratio is 1:1:1:1:1:1.

Investor Profit Distribution Schedule

The $10,000 allocated to the investors will be distributed pro-rata on the number of shares.

# of Shares Profit Distribution
Investor 1 800 $2,222
Investor 2 600 $1,667
Investor 3 1100 $3,056
Investor 4 200 $556
Employee 2 300 $833
Employee 4 100 $277
Supplier 2 500 $1,389
Total 3600 $10,000

This profit distribution is $2.78 per share.

Employee Profit Distribution Schedule All employees are eligible for the employee profit distribution. They need not join the spolu network.

Remember it takes 36 months of employment to be fully vested in the employee profit distribution. For employees with less than 36 months, their distributed profit will be prorated to the months worked prior to the income statement date.

Remuneration during Income Statement period Months employed by EZ-Way In-vesture pro-rata factor Vested Earnings Employee Profit Distribution
Employee 1 $80,000 22 0.6111 $48,888 $3,655
Employee 2 $50,000 42 1.0000 $50,000 $3,738
Employee 3 $35,000 9 0.2500 $8,750 $6545
Employee 4 $25,000 56 1.0000 $25,000 $1,869
Employee 5 $10,000 4 0.1111 $1,111 $84
Totals $200,000     $133,749 $10,000

Customer Profit Distribution Schedule Only the customers in the spolu network will get their share of the profit distribution. The distribution will be based pro-rata of the products/services purchased from EZ-Way.

Purchases Purchases of Spolu Members Profit Distribution
Customer 1* $250,000 $250,000 $6,757
Customer 2 $200,000 0 0
Customer 3 $150,000 0 0
Customer 4* $50,000 $50,000 $1,351
Employee 2* $10,000 $10,000 $271
Employee 3 $30,000 0 0
Investor 3* $20,000 $20,000 $540
Investor 4* $40,000 $40,000 $1,081
Total $750,000 $370,000 $10,000

Member customers are getting almost a 3% refund on purchases. This could entice the other customers to join the spolu network.

Supplier Profit Distribution Schedule

Total Supplied Amount Supplied by Spolu Members Profit Distribution for Suppliers
Supplier 1* $150,000 $150,000 $4,000
Supplier 2* $125,000 $125,000 $3,333
Supplier 3* $100,000 $100,000 2,667
Supplier 4 $75,000 0 0
Total $450,000 $375,000 $10,000

Employee #2 Schedule

She is earning money from four places in EZ-Way Production:

Income Stream Income
Employment $50,000
Employee Profit Distribution $3,738
Customer Profit Distribution $271
Investor Profit Distribution $1,667
Total $55,676


The charities supported by the spolu will get their share of the $10,000 allocated to philanthropy.

Re-investment Obligation

Another $10,000 will be invested into other spolus. The senior management team assigns a committee to inspect the Spolu Exchange and the spolu shares available for sale. They will purchase the shares that they think is a good investment decision for the spolu. The shares become property of the spolu. Profit distribution from these shares will come into the spolu. And these share can be sold if needed.

Spolu 8: Profits with Profit Distribution

The EZ-Way example shows that its spolu income constituted about 25% of its total income. We should expect incoming profit distribution constituting a significant portion of a spolu's profit.

While traditional investors would not be happy with sharing profits with other stakeholders, astute spolu investors will realize that the profits circling around from spolu-to-spolu might actually increase the long-term return on their investment.

I also see this circling of profits as something beneficial to the economy. Because many businesses have tight margins, having a spolu income will ease difficult cash flow situations. These businesses will have less stress, which makes them more able to make better business decisions.

At a higher level, spolu profits cascading throughout the spolu network will justify continual release of profits into the economy. I can see the spolu network actually stimulating the economy. It could also be an informal increase in the money supply. Here I shall leave these thoughts with professional economists to estimate the implications of spolu profits circling in the economy.

Spolu 9: What Business becomes a Spolu?

Why would a business want to join the spolu network?

Good question.

The second and subsequent businesses that join the spolu network will be small and independent. They won't have the marketing and purchasing power of their corporate competitors.

But there are consumers who are looking for an alternative and organic way to participate in the economy. Being part of the spolu network identifies the spolu to these customers. With the profit distribution, many customers will prefer to shop at the spolu than a corporation doing similar business. Not only would these customers get a little money back, they would know the profits are moving around the economy helping all sorts of people-and not mostly going to people who are already wealthy.

So I'm anticipating independent restaurants, retailers, car and home repairs, and artisans as the early spolu adopters. Maybe farmer's markets and local media outlets.

As these businesses get more customers, other businesses will see the advantage of joining the spolu network. I can see rental properties, grocery stores, farms, small factories, legal offices, dental offices, etc. as becoming part of the second wave.

Bigger businesses that have many small customers will have to look at changing from a corporate model to the spolu model. The first "big" business to make this change will get see benefits. So banks, credit cards, airlines, hotels, insurance, and social media platforms could all move into the spolu network.

Finally, businesses that deal mostly with other businesses will consider joining the spolu network.

Please understand that joining the spolu will be voluntary. No business shall be forced into a spolu. As well, a spolu is not obligated to do business with other spolus. If, for a certain product or service, a corporation offers a better deal than any spolu in the spolu network, the spolu should buy from that corporation. But if the corporation and spolu are equal, the spolu would have an advantage to get that business.

Spolu 10: The First Spolu

In the previous section, I introduced the most likely first entrants into the spolu network as "the second and subsequent" spolus.

What about the first spolu?

The first spolu will be the spolu network itself. It will take a significant investment to set up this spolu. Here are some of the tasks:

  1. Set up the legal rules for spolus (the spolu articles).
  2. Set up the accounting rules for spolus.
  3. Set up the mechanism for spolu customers to record their spolu purchases.
  4. Set up the mechanism for auditing spolus to ensure they abide by the spolu rules. If there are violations, there needs to be investigations and possible removal of businesses from the spolu network.
  5. Set up the Spolu Exchange, where investors can sell and buy spolu shares. The Exchange could even be the second spolu, being fairly independent from the first spolu.

I will talk about all these features in later sections. But all this framework will need to be in place before the second spolu business can be accepted.

I'm estimating $20,000,000 as an amount to build this first spolu. So the first spolu will need many investors. Some of these investors will be altruistic; they will contribute funds to bring this new business model to the world. But there is also the prospect of a payout within five to ten years. Future profits would be the bonus.

The first spolu will not charge a fee to the new spolus. Rather the first spolu will get shares of the new spolu; I suggest about 2% of total holdings. When that spolu has its first profit distribution, some of those funds will flow into the first spolu. In essence, the first spolu should be earning profit distributions from thousands of spolus.

Some of that revenue will cover the expenses of running the spolu network. But the rest will go to profit distribution, which will include the spolus that have joined the spolu network.

For this first spolu, I recommend the profit distribution ratio be 2:1:1:1:1:1 to give incentive to find the investors for that $20,000,000.

Spolu 11: The Spolu Articles

When I set up my first business in 1985, I paid my lawyer $600 to incorporate that business. When I got this corporation, I was able to open up a bank account in that corporation's name. I put my seed money into that account. From there, my new corporation could buy assets, hire employees, and legally engage in many business activities. I sold shares to other investors. In the eyes of the government and legal system, my corporation was a "corporate citizen," with rights and obligations.

When I got this corporation, it came with its own rulebook about the internal governance of the corporation. I did not read this 100-page rulebook. Nor did I read the "minute book" that my lawyer made for me.

If I were the only shareholder, all that documentation is not that important. But if there are other shareholders, the rulebook spells out the rights of all the shareholders. If the shareholders have a dispute which ends up in civil court, the judge will look at this rulebook and the evidence to make the decision. This rulebook (the articles) is automatically given to all new corporations who incorporate in a political jurisdiction. The rulebook has decades of corporate legal experience written into its text.

And I did have a dispute with some of my shareholders. That's when I read the rulebook. It did help provide a resolution because it protected the rights of both me and my disagreeable shareholders.

In a like manner, the spolu will have its own rulebook. Because the spolu structure is different than other models of corporate governance, the spolu rules will have to write the new rules. But it can still borrow or mirror many concepts from the established rulebooks.

There are a few features that will be specific to the spolu concept:

  1. The spolu rules will require the process for selecting the senior management team, which will be analogous to the corporations' "Board of Directors."
  2. The slow dilution of outstanding spolu shares.
  3. Third, rules regarding a spolu being removed from the spolu network or voluntarily removing itself from the spolu network. In such a case, the spolu becomes a regular corporation-and can continue operating, but without the spolu rules, benefits, and support. The investors take full control.

Then the first spolu will then need to convince the government to charter the spolu concept, giving the spolu similar legal status as corporations, non-profit societies, and co-operatives.

Once the first spolu gets this charter, it can "incorporate" itself (under spolu rules).

Spolu 12: The Senior Management Team

One legal structure will be the selection of the senior management team, which is analogous to the corporation's board of directors. I recommend this structure.

The spolu's senior management team will be making the big decisions for the spolu.

I recommend that this team be comprised of these members:

  1. Three members from the investors
  2. Two members from the employees
  3. Two members from the customers
  4. Two members from the suppliers
  5. One member from the philanthropy

All five of these groups will have their internal elections to decide who to send to into the senior management team.

While I could get into many details here, I recommend the writers of the spolu articles look into the principles of Tiered Democratic Governance. This will help in setting up these internal elections for the members of the senior management team.

Please note that the investors do not have majority control of the spolu. This is important. Founding entrepreneurs who do like this arrangements should not put their business under a spolu.

Spolu 13: Spolu Accounting

One legal structure will be the selection of the senior management team, which is analogous to the corporation's board of directors. I recommend this structure.

The first spolu will need to produce a similar guide like GAAP. It might even just adopt its local version of GAAP.

But there will be some other accounting rules spolus need to abide by.

Profit Distribution

I recommend that, after annual financial statements are completed, spolus are obligated to distribute at least 40% of stated profits to the various stakeholders. The senior management team can decide to distribute more than 40%.

I can see many spolus wanting to maintain a certain cash reserve. When a few months of cash flow is covered by these reserves, the senior management team would be more likely to distribute 80% to 100% of its stated profits.

When a spolu undergoes expansion, it should keep its profit distribution closer to the 40%. Cash will be tight.

If a spolu does not have a profit--as per its financial sheets, it does not distribute profit. However, I predict most spolus will have at least a little profit to distribute.

Spolu Reporting

Financial sheets for all spolus will be available for public viewing. The first spolu will manage this database. Accounting has become more automated, so interim monthly statements can be generated and posted. This information will be useful for investors using the Spolu Exchange.

Depreciation & Amortization

The spolu accounting rules will specify the rules for estimating how assets are being consumed. I suspect the spolu network will use similar rules already in place.

For taxation purposes, the governments have their own rules. I don't see the discrepancy going away for the spolu network.

Management Salaries

There will be a cap on management salaries. The next section will address this issue.

Consulting Fees

The corporate world has little accounting tricks to move money around. The spolu auditors need to verify whether "consulting fees"--management, legal, accounting, marketing, engineering, training, etc.--are legitimate business expenses, not for tax minimization or corruption. So these fees need to explicitly explained in the accounting statements.

Spolu 14: Management Salaries

All spolus will be subject to a cap on management salaries. While many citizens regard current management salaries as "obscene," there still needs to be some recognition for the skills of management to keep the spolu in a sustainable and profitable direction. My sense of my internet discussion suggests that the public would be accepting of a multiplier of 20 between the top earner and the lowest earner in a spolu.

Included in the financial sheets would be a schedule of top salary/wage earners in the spolu and a summary of the wages paid to the lower-level workers.

If the managers want a raise, there are two ways. First, they can lead the spolu into generating more profits, which should increase the profit distribution, which then puts more money into the manager's pay. Second, the spolu can increase the wages of the lowest workers, which also raises the cap on the salaries for managers.

The motivation for management performance is going to be higher in spolu network than in the corporate world.

Spolu 15: Spolu Auditing

The spolus need regular auditing, maybe once every four years by the spolu network. Are the spolu accounting rules being followed? Are management salaries within the 20x multiplier? Are the invoices for various "consulting services" actually for real services rendered--and not just a mechanism to move money out of the spolu. Has the spolu become unnecessarily complicated in its corporate structure?

In other words, the spolu auditing team will be checking to ensure the spolu is operating with the spolu spirit, working towards providing profit distribution for the stakeholders.

I recommend that each spolu be ranked for their adherence to its spolu spirit. That rank will be changed after each audit. After the first audit, a spolus can move from "New" to "2". Another favorable audit moves it from "2" to "3."

A rank of "1" means a spolu has some issues that need rectifying. If they are not rectified by the next audit, the spolu should be dropped from the spolu network. The spolu shares are converted to corporate shares, and the investors are now in full control of the business. This business no longer receives profit distributions from other spolus. It will likely suffer some loss of customers.

It is common practice for many businesses to set up multiple corporations, all with cross holdings in each other. In the same way, spolus may also spawn other spolus. For example, I alluded that the first spolu might want to set up the Spolu Exchange as a separate spolu. The first spolu may be the biggest or even the only investor in the Exchange. But the Exchange would run independently from the first spolu, with its own senior management team. And in this team, the investo will not have a majority vote.

Another example would be when a spolu moves some of its operations into another tax jurisdiction. For example, a construction spolu may find some business in another state or province, with different tax structures and business rules. It might be better for the main spolu to set up a second spolu for that location.

All spolus should have a primary business providing much of its income. If a spolu is more of a holding company (most revenue coming from spolu shares) rather than an operating company (with employees, customers, or suppliers), it might be appropriate for the spolu network to force this spolu to liquidate or convert to a corporation. It is important for the spolu network to keep a sense of openness about its operations. Too many "holding spolus" will seem like tax avoidance, obscure ownership, or corrupt transactions.

If an employee suspects her spolu employer is doing some "funny business," she can send an anonymous, private communication to the first spolu. When the spolu is up for audit, the auditors have an accounting target to investigate. The employee will not be made known as the source for that target.

Dave's Four Axioms

Maybe this is a good place to introduce my four spolu axioms:

  1. Keep your business structure simple!
  2. Focus on your business!
  3. Pay your taxes!
  4. Distribute your profits!

Spolu 16: Corporate vs. Spolu Matrix

The corporate matrix is simple. Investors invest in the business. If the business succeeds, the investors get all the benefits-in either dividends or capital gains.

The spolu matrix is also simple. If the spolu is successful, it puts a significant portion of that profit back to the stakeholders: investors, employees, customers, suppliers, philanthropy, and re-investment obligations.

Which matrix works better for you?

To help you answer this question, let's create another hypothetical business. Here are the basic statistics of B-Z Manufacturing:

  • 100 employees, who earn $40,000 a year. Total annual payroll is $4,000,000
  • 1 CEO. The corporate CEO makes $2,000,000 a year. The spolu network's 20x multiplier means its CEO makes $800,000.
  • The pre-payroll profit is $7,000,000.
  • Corporate taxes are 25%.
  • All spolu employees are fully vested to share the profit distribution.

  Corporation Spolu
Pre-payroll Profit   7,000,000   7,000,000
CEO Salary 2,000,000   800,000  
Employee Salaries 4,000,000 6,000,000 400,000 4,800,000
Pretax Profit   1,000,000   2,200,000
Taxes   250,000   550,000
Post-tax Profit   750,000   1,650,000

The corporate model would move $750,000 to the investors.

The spolu model will move $1,650,000 to stakeholders. One-sixth goes to the investors, which means $275,000. Another sixth goes to the employees, so $275,000 is split between the CEO and the employees. The CEO gets a bonus of $45,833. Each employee gets a bonus of $2,291. This is a 5.7% "profit sharing" bonus.

Of course, the investors and corporate CEOs would prefer the corporate model. This system works better for them.

But notice the spolu employees get a bit of those profits. The corporate employees do not. Which company is going to be more motivated to perform better next year?

This example does not show two other motivational advantages. First, the spolu will also be getting other spolu income, whereas the corporation does not. Second, the spolu will have a more loyal customer base.

The question I should be asking is: "If the spolu and corporations are direct competitors, which one is more likely to steal market share from the other?"

Spolu 17: Management Salaries, Part 2

In the previous section, I created a hypothetical spolu with 100 employees, a pre-payroll cash flow of $7,000,000, and a manager that is paid $800,000 a year. That renumeration is based on the 20x multiplier of lowest to highest paid worker.

Even though the spolu CEO is paid a lot less than the corporate CEO, many readers would not want to pay any manager $800,000 a year. I will offer a few more perspectives on this topic.

Management comes with talent, education, and experience. Many of the world's CEO's did not get their positions mostly by luck, nepotism, or favors. In their climb to the top, they gained a reputation of leading successful business ventures. Whether we like it or not, such talent is in short supply. It needs to be adequately compensated to today's economic culture.

Would a proven CEO be willing to take a substantial pay cut to manage a spolu? I think some of them would. Some CEOs do have a social conscience. But, for some businesses (like those businesses with many employees), paying managers just a bit more than the employees is not going to find the right management skills. So a salary of $800,000 a year is not unreasonable for this kind of business-in these times.

The spolu culture will evolve. Not only will employees be more motivated by the profit-sharing nature of the spolu, they will be learning how to make collective decisions within their own sphere of influence in the business. In time, the role of the spolu manager will evolve from making decisions for the subordinates toward keeping the subordinates talking and making their own decisions. In essence, the spolu will evolve to a more horizontal hierarchy. Many management functions will move to committees of employees, rather than an experienced CEO processing information to make decisions.

And many spolus will be small businesses. These businesses just won't have the cash flow to ever pay their managers a CEO salary.

I like to anticipate critics. One situation I can envision is a small spolu that raises its CEO salary to consume all the profits. As long as the 20x multiplier is adhered to, the spolu network cannot legally enforce a reduction in this salary. But if no profit distributions are happening, such a spolu would get a reputation of being more of a taker than giver to the spolu network. It might start losing customers if the profit distributions are not there. Profit distributions build the reputation within the spolu network.

Founding entrepreneurs are people of great energy, vision, and talents. If they want full control of their idea and the rewards of that idea, they should not put their business under a spolu. But once under a spolu, the founder has to surrender some sovereignty to the senior management team and look towards profit distributions rather than personal gain in wealth.

Spolu 18: The Spolu Exchange

Some spolu investors will want to divest their spolu holdings:

  1. Some spolus could run into cash flow problems-and selling their spolu holdings might be a good way to climb out a bad financial situation.
  2. The spolu may wish to finance an expansion be selling its current spolu holdings.
  3. Some spolus will fail, which incurs liquidation.
  4. Individual investors may want to sell spolu shares to buy something else (like a house).
  5. Individual investors may pass away; the estate will want to sell these shares.
  6. Individual investors may wish to sell/give shares to specific individuals or charities.
  7. Governments who invested into a spolu for a certain societal objective may want to divest their holdings.
Having a spolu exchange will allow buyers and sellers to find each other.

In essence, the first spolu will need to set up The Spolu Exchange for this purpose.

Mechanisms for the Spolu Exchange

There are four ways for the spolu exchange to effect transactions.

First, buyers and sellers can come to some agreement outside the Spolu Exchange. When they find that agreement, they can use the Exchange to formalize their agreement is a cost-effective way.

Second, investors who have an interest in investing in a particular spolu can express their interest in buying shares. They will put up a posting to buy shares for a certain price. If a spolu share owner likes the share price offered, the trade will be conducted between the two parties.

Third, if the spolu share owner believes a higher share price is possible than what the above investors are offering, those shares can be listed on the Spolu Exchange. The shares will be on auction for two weeks. Spolu investors can inspect all the financial information about the spolu and make an appropriate bid. At the end of the auction, the highest bid buys the spolu from the owner.

Fourth, the seller can place a reserve bid on his shares. If this reserve bid is not reached, the seller can place the shares on the exchange again, maybe with a lower reserve bid.

So spolu share owners has several mechanisms to ensure a reasonable value for their shares. I'm quite sure that most spolu shares will be sold at a reasonable price-without all the tools of arbitrage so promoted by the financial industry.

The New Arbitrage

Today's stock exchanges are designed for unfettered transactions between buyers and sellers. The advocates of such systems believe that a market of many buyers and sellers reduce the "arbitrage" of such transactions. This means the price of most transactions is indicative of true value and fair to past, present, and future buyers and sellers.

But, in my opinion, this arbitrage process, including its many derivative products, is more about funneling more wealth to already wealthy people than providing an accurate value of shares bought and sold. In other words, arbitrage is overrated (in my opinion).

The Spolu Exchange will have a different arbitrage. I believe the Spolu Exchange buy-sell mechanisms will provide at least 80% of the true value to the sellers. Because most spolu investors should have been looking at a five-year time frame when they made their investment, they should have already recovered much of their original investment. They still have the shares, with a market value which the Spolu Exchange will determine. And since these investors are mostly looking to get cash for things outside of re-investing, they will be not so annoyed with a perceived loss.

I recommend that the Spolu Exchange use fees per transaction to discourage short-term investments. There should be a small fee for placing shares on the exchange, a small fee for placing a bid, and a bigger fee for effecting the legal transaction. These fees will make "day-trading" unprofitable.

In other words, the Spolu Exchange is looking for investors with a long-term outlook. They buy their investment and stay with it for many years.

So I estimate the volume of spolu share transactions will be about 1% of what today's stock exchanges move. This does not mean the Spolu Exchange will not find fair and reasonable value for sellers.

Remember that any blue-chip company on a modern stock exchange can change value by 3% on any given day without any news, good or bad, about the company. To me, this is another sign that arbitrage is overrated. We can reduce trading volume and still find a reasonable price for shares.

The Public Offering

Entrepreneurs are always looking to put their ideas, vision, and energy into the marketplace. They will join the spolu network. They will use the Spolu Exchange to help raise capital, putting their prospectus for investors to inspect.

Some established spolus will want to expand operations-and would prefer to fund this expansion by selling more shares than finding lenders. They would post their offering on the Spolu Exchange.

While both of these spolus would list their proposals on the Spolu Exchange, they might also have to "hustle" outside the Exchange to find that capital. When agreement is reached, the Exchange will legalize the transaction for both parties-for a small fee.

Spolu 19: Determining Spolu Share Value

What will determine the value of any spolu share?

To answer this question, I will create a hypothetical investment scenario. An investor has only two choices. He can invest into a 2% term deposit at his bank. Or he can purchase shares in a spolu that have historically paid $3 per share. This spolu is stable, so it's safe to assume this trend is likely to continue.

A basic financial calculation suggests that this share is worth about $150 ($150 x 2% = $3). This assumes a risk-free investment. But spolus are never risk-free, so some discount is warranted. Let's say that many astute spolu investors would be willing to pay $125 for this share. For sure $175 would not make much sense; the term deposit in the bank offers a better return, with no risk. The historical per-share profit distribution will determine much of the value of any spolu share.

The spolu exchange will also have its speculators. They are looking for good deals for their long-term investments. If our example's spolu share is on the auction and current bid is $70, one speculator would realize this spolu is undervalued. He would put a bid of $80. Maybe he might get lucky and actually purchase this share at this price. But more likely, another speculator is going to bid a little more. The competing speculators will bring the value closer to $125 within a few days of being listed on the Exchange. The rest of the auction will be to find investors willing to pay a premium.

Some of the premium investors will be investors who try to predict the future. They will go beyond the basic financial calculation-and apply economic analyses to see which spolus are likely increase their profit distribution with that future. These investors will be willing to pay more for these shares.

Spolus enacting on their re-investment obligation may be looking for specific spolus to invest in. They might be willing to pay a premium to get these shares.

Employees might want to invest into their employers.

Some spolus will have a great rapport with the community, which could create a premium demand.

All these premium investors are good for the sellers. No one is forced to buy spolu shares that are overpriced.

Spolu shares that cannot attract premium investors might be a sign of a spolu that is not doing well. Going back to our hypothetical spolu, if speculators are paying $100 for its shares-and no new bids are coming in, that price might be too much.

Lastly, mutual funds specializing in spolu investments should be allowed on the exchange. Investors who don't have the means to build a diversified portfolio (to manage risk) can put their modest spolu investments with a mutual fund.

By having speculators, basic investors, premium investors, and mutual funds, sellers should get a reasonable price for their spolu shares. The two-week auction is not a hardship to sell spolu assets. The Spolu Exchange will find a reasonably good value for the sellers, but without all the drama and bustle of a modern stock exchange.

Spolu 20: Share Dilution

Previously, I mentioned that investors lose a small percentage of their holdings in a spolu every year (I recommend about 5%). If there are no new spolu shares being created, the relative holdings between the investors do not change. Their relative earnings from their spolu profit distribution would not change as their number of shares decrease.

But losing spolu shares for no reason seems contrary to principles of free enterprise. Allow me to make a few points on this matter.

But let's assume this scenario. A spolu started up 10 years ago, which was financed by seed capital of original investors. After two years, the spolu put out its first profit distribution and has not missed a distribution since. The original investors have made their money back and 50% more. Now, the spolu wants to expand its operations and is looking for outside investors to fund that expansion.

But in the last 10 years, the original investors had their holdings reduced by about half. This dilution of original investment would make it easier for the spolu to find new investors for the expansion. The new prospective shareholders would see more reward for their investment if the legacy shareholders share less in the future returns. This makes finding the expansion funds more likely. The original investors would likely be better off with their diluted holdings and the expansion than with their original holdings but no expansion.

Basic financial analysis (discounting cash flows) emphasizes the near future than the far future. In other words, the profits of the long term do should not factor much in the original investment decision. In a similar manner, astute spolu investors should select investments that the "payout" is possible in less than 10 years. Any profit distribution after that payout is a surplus for the investor. So if the payout time has been reached, asking original investors to take a cut in the profits of the expansion is not that painful.

When the spolu concept becomes popular, the current corporate model will still be around. For investors who don't like the feature of losing 5% or so of their spolu holdings every year, they can still invest in corporations.

Spolu 21: Simple Business Structure

When I started my first business in 1985, I met a Canadian businessman who had set up an elaborate business structure for his business. His business had about $5m in annual revenues.

Actually, he had two front companies that brought in that $5m. He had three other three holding companies that owned shares in the two front companies and in each other. The businessman was moving money around these five companies to minimize the taxes he was paying. His accountant was telling him to draw a salary from this or that company, pay dividends from this company to that company, and paying "management fees" from one company to another. The accountant was taking advantage that corporate profits, dividends, and salaries are taxed at different rates. The five companies were just a game to shuffle money around-in a legal manner. But no new commerce was really created (except for the accountant and lawyer).

What about the hassle and expense to administer these five companies? Each company had to send a report to the government. The accountant and lawyer needed to be paid. Was this businessman actually saving enough with lower taxes to make this all worthwhile? I don't know. But I can see some businesspeople willingly incurring a big administrative expense just to not pay taxes.

That was in 1985. These days, this kind of businessman would likely incorporate a sixth company in an offshore tax haven. This company would likely own the shares in all five Canadian companies. And it would issue an invoice to these companies called a "management fee." Money would flow from Canada to the country of the tax haven. It is only a coincidence that these management fees reduce the income to the Canadian companies to zero. No profits, no Canadian corporate taxes. Even though the operating business does all its business in Canada.

The tax haven country would charge the tax haven corporation a much smaller tax than the Canadian government. The tax haven gets the benefits this tax revenue-without having to provide services (like roads and police protection) to run the front businesses in Canada.

The businessperson's money is now sitting in the bank account of the tax haven country. There would be several ways to move that money back to Canada with minimal taxes. For example, a credit card based in a bank in the tax haven country can still buy things in Canada.

The spolu network is going to make all this transparent. To be in the spolu network, a lot of financial information must become public knowledge.

Some businesses would prefer all this information to be private. If so, then they should stay with the corporate model. But these businesses won't get the benefit of being in the spolu network.

Instead, spolus should show off the taxes they have paid and the profits they have distributed. This would give them more credibility of being an honest business in their community, province (state), and country. And with a reputation of being an honest and contributing business, they should find more business.

When a spolu business gets too convoluted, the spolu network should consider kicking it out of the spolu network.

Let's bring back my four rules:

  1. Keep your business structure simple!
  2. Focus on the business!
  3. Pay your taxes!
  4. Distribute your profits!

Do business to distribute profits! When this becomes the primary business objective, so many other things will fall into place to run a fantastic and respectable business-and a network of businesses. The Spolu Network.

Spolu 22: Keep the Taxes Low

Readers of the left-wing persuasion believe taxing the corporate world more would provide more tax revenue. More likely, this move would entice more corporations to use more tax avoidance techniques. For the spolu, it will kill some of the spirit to distribute more profits.

Rather such readers should be advocates for low taxes for the spolu concept. I recommend 15% to 25% of profits. This rate will provide reasonable cash flow to the government coffers. Tax avoidance techniques will not be sought out. Investors still have the incentive to invest. Spolu employees look forward to annual bonus and will take their employer's business more seriously. Customers and suppliers will form stronger bonds. Charities will get more money. All this is good for the economy.

If a spolu has a profit of $100,000 and pays $20,000 in taxes, this means that (eventually) the other $80,000 will be moved in the economy to get taxed again. Let's see: 20% of $80,000 is another $16,000 for the government!

Just let the spolus focus on distributing profits. More tax revenue is possible with a lower tax rate for spolus.

Don't kill the spirit to distribute profits with higher taxes!

Spolu 23: Tax Cascading

I'm pretty sure some financial experts will criticize the previous section. Taxing post-tax profits is called tax cascading.

In our example of EZ Productions, EZ received profit distribution from other spolus. But these profit distributions came after these spolus were taxed. So this profit was already taxed. Yet my income statement clearly shows that this income is taxed again. The people in charge of financial theory will be aghast at this double taxation. Let me say this:

A spolu that is in a position to be taxed is in a good financial position. It can afford to pay the tax.

A spolu that increases its profits because it got profit distributions from other spolus is in a good financial position. It can afford to pay the tax.

If a spolu customer gets a 4% refund on purchase it made, he/she/it has a little extra money to pay the taxes on that refund.

In our EZ Productions example, Employee #2 got $5,676 more income from her spolu profit distributions. This amount is an extra 11% above her employment income. Paying taxes on this income does not mean she herself incurs a loss because the spolus who paid the profit distributions were already taxed. She got an extra $5,676, minus whatever taxes she owes. She can afford to pay the taxes on her spolu income.

The financial experts will try to portray the spolu as a system of cascading taxes-and eventually such an economic system will fail. No, the spolu concept will not fail on this matter. If spolus are failing, there will be no taxes and no profit distributions. The fact that many spolus will be first paying taxes and then paying profit distributions-year-by-year-by-year is a sign of a healthy spolu network. Profit distributions help keep some spolus solvent. Profit distributions help other spolus paying more taxes.

Let me explain it in a different way. If the taxes are cascading in the spolu (and taking steam out of the economy), then the profits are cascading at a higher rate than the taxes. Think 80% vs. 20%. The cascading profits are more positive than the negative cascading taxes.

If the spolu network is taxed at 20% of profits, it will likely bring in more tax revenue than the corporate world with a taxation rate of 40%--and all its tricks not to pay that 40%.

By paying the 20% taxes, spolus focus on running their businesses. A spolu business is not a front to minimize paying taxes.

All the stakeholders who get profit distributions will be in better position to pay a bit more taxes.

Here are my spolu rules again:

  1. Keep your business structure simple!
  2. Focus on the business!
  3. Pay your taxes!
  4. Distribute your profits!

Be thankful that your spolu can distribute profits. It's a sign of a great business.

When 95% of spolus can distribute profits, that is a healthy economy.

Spolu 24: Conclusion

The spolu concept needs a champion to move it forward.

But it won't be me.

My first passion is my Tiered Democratic Governance. And being the champion for this cause is more within my life abilities: I am no longer a young person. And the TDG, when it gets to a certain point, will learn how to build itself. It will require not so much of my time and effort.

But spolu will be a lot more work than the TDG. I expect five years of full-time effort. That's not in my future.

The world needs a new business model. Maybe building the spolu is in your future.

Thank you for reading about the Spolu

The Spolu is still a work in progress. It will be rethought, restructured, and rewritten. If you have any suggestions, email me at fffdavevolekpublishing@gmail.com (remove the three f's, which is my spam control).

The Spolu ebook should be available in 2025.

Dave Volek
Brooks, Alberta, Canada
February 2024

© 2024 Dave Volek. All Rights Reserved.