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How to Create an Ownership-Transfer-Corporation

by By Shann Turnbull

Corporations create, concentrate and control wealth on an undemocratic basis and are in turn controlled by institutional investors not accountable to citizens. We need to introduce tax incentives to humanise corporations so that they become socially accountable, more efficient and profitable, and promote far greater economic equity. Tax incentives would encourage corporations to be owned and controlled directly by those citizens who sustain the existence of corporations as employees, customers or suppliers. Stakeholders would include citizens providing infrastructure services in the host localities. This would maximise local ownership, control and the self-determination of local communities.

The corporate tax rate would be reduced so that it was more profitable for stockholders to agree to transfer, without payment, a small amount of equity each year to the stakeholders of record. Halving the corporate tax rate could provide sufficient incentive to transfer a 5% equity per year. In this way an Ownership Transfer Corporation (OTC) is created to transfer ownership and control from investors to stakeholders over a 20 year period. It is a win-win outcome for investors, stakeholders and government.

Investors obtain higher returns, stakeholders, which include management, are enriched with assets, income and votes, and the government tax base is transferred from corporations to individuals who pay tax at a higher rate. The government also wins by replacing government welfare cheques with corporate dividend cheques.

A much more important but subtle result is that the size of corporations will be reduced to human scale. This is because shareholders in OTCs would create pressure on management to fully pay out the higher profits created by the tax incentive. Otherwise, investors would lose some equity each year in any retained profits. Business growth would be financed by shareholders re-investing their higher dividends in offspring corporations, which acquired operating units from the Progenitor Company. This would increase economic efficiency as the re-investment of corporate cashflows becomes subject to market forces rather than management discretions.

The introduction of stakeholders to the ownership and control of enterprises in a way recommended by Prof. Michael Porter would increase the competitiveness of corporations. OTCs would establish independently elected but separate advisory "Stakeholder Councils" (Like Citizen Utility Boards) for customers, employees and suppliers. Each council would help to create a "loyal opposition" to the self-interest of other stakeholders to formulate and negotiate win-win outcomes for all concerned rather than just for management and investor elites as occurs at present.

OTCs can be established under current corporate laws by stockholders agreeing to create "Stakeholder stock", which obtains equity rights from the common stock at the agreed rate (say 5% p.a.). Stakeholder stock is issued on an open ended basis pro-rata to the market value contributed by citizens directly or indirectly through working for stakeholder enterprises. In this way citizens instead of institutions would broadly share corporate ownership and control on a localised democratic basis.


  1. Either:
    1. Create a corporation which has two categories of stock:
      1. Investment stock, and
      2. Stakeholder stock, or
    2. Create the incentive for stockholders of existing corporations to change their constitutions/by-laws to an arrangement where:-

  2. All ownership rights of the Investment stock begin to automatically transfer after a suitable time to the Stakeholder stock at a set rate, and after no longer than 25 years all the assets of the company are sold to a successor corporation with the same arrangements.

  3. If a new corporation, nominate a 10% rate of ownership change to begin ten years after the first dividend is paid but no later than five years after the "birth" of the corporation when revenues commence.

    If the corporation is already established, nominate an ownership transfer rate of 5% per year from the time the incentive is provided (eg. reduction of corporate taxes from say 35% to 20%)

  4. Make provision in the corporate constitution/by-laws that stakeholders' stock is allocated to voting citizens who are directly or indirectly strategic stakeholders with one third distributed to each category being:
    1. employees,
    2. customers, (including employees of customers) and
    3. suppliers, including employees of suppliers and those in the host community providing infrastructure.

  5. When the corporation is re-capitalised before 25 years (ie. when all its assets are sold to a newly "born" successor corporation) only the stakeholders will have ownership rights and the cash proceeds from the sale can be used to either:
    1. Invest in the investor stock of the successor OTC and/or
    2. Invest in another corporation, or a home, etc. and/or
    3. Spend, whether or not the stakeholder is in retirement and so create a two-income economy.

  6. Stakeholders earn ownership points according to their market value of their contribution to the enterprise as an employee, customer or supplier as established in the records of the company and by the stakeholder (eg. customers could be given vouchers that they could redeem into stakeholders' stock if intermediaries distributed the goods or services consumed).

  7. Purchase of new equipment and expansion of the business would be financed by raising funds from corporate "children"/offspring of the OTC. All holders of investment stock in the OTC "parent" would obtain first right of refusal to invest in the investment stock of any offspring.

NOTE. Such 'rights' issues would fulfil the role of dividend re-investment plans. The investors would require OTC's to distribute all their surplus cashflow each year so dividend payments would be much higher than in corporations with perpetual, static, monopoly property rights. OTC's create time limited, dynamic, sharing property rights.

Shann Turnbull
PO Box 266 Woollahra, Sydney, Australia, 1350.
Ph: +612-9328-7466, Fax: +612-9327-1497

Australia's Macquarie University
Ph.D. (Macq.), MBA (Harvard), B.Sc. (Melb.),
Dip. Elec. Eng. (Hobart)
Dr. Turnbull is a businessman/entrepreneur, prolific author on reforming the socio-economic system, and 1975 pioneer in the study and teaching of corporate governance.

Much of his subsequent work has been devoted to developing and implementing the concepts in his landmark book, Democratising The Wealth of Nations. He is a founding member and a past President of the Australian Employee Ownership Association. He is currently researching how social institutions can become self-governing through involving their stakeholders by adopting a decentralised information and control architecture.

Many of his papers on stakeholder democracy and corporate governance are available online from Social Science Electronic Publishing.

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