The Founders Contract Instructions

Founders Buyout Instructions

Use this page as your guide to how the paradigm works.

The Founders Buyout is an entrepreneurial compensation paradigm for startups designed to fairly compensates founders, investors, employees, suppliers, and customers while transitioning company ownership and control to its stakeholders over time. Through this process, all stakeholders are fairly compensated for delivering the advantages of a successful corporation run for the benefit of the community it serves.

  1. Phase Alpha: Formation: The company (NewCo) is established as a DAO on blockchain smart contracts or through traditional legal agreements.
  2. Initial agreements: Founders set a suitable compensation amount (e.g., $100M) and agree on the desired ROI for investors (e.g., 10X).
  3. Share types:
    • Founder Shares: Held by founders and critical employees representing initial equity.
    • A shares: Granted to investors with full voting rights.
    • B shares: Held by suppliers and customers, serving an advisory role until Founder and A shares are repurchased, at which point they convert to A shares.
    • C share: Held by the Founder/CEO, granting veto power and the right to claim a Board of Directors salary.
  4. Phase Beta: Fundraising – Founders raise capital from investors.
  5. Phase 1: Buildout – Key employees are hired after the initial investment round, and some may be granted Founder shares as additional compensation.
  6. Trading and share distribution: With every purchase, B shares are distributed to customers and suppliers based on the cash value deposited into the company’s treasury.
  7. Phase 2: Buyouts – Profit allocation and specific payout structure:
    • 1.5% of net profit goes to investors until the promised ROI is reached.
    • 10% of net profit is used for Founder and A share buyback.
      1. Investors receive 100% of their initial investments.
      2. Founder buyback begins, with 50% allocated to founders and 50% to investors until investors reach 2X their investments.
      3. Founders receive 100% of the buyback until their shares are fully repurchased.
      4. Investors receive 1.5% until they reach 10X ROI.
  8. Transition of control: Control of the company is gradually transferred to B shareholders (suppliers, customers, and employees) as Founder and A shares are repurchased.
  9. DAO decision-making: The DAO votes on company operating costs and policies. The Founder/CEO maintains veto power over decisions that do not pass with a supermajority of votes (more than 65%).
  10. Phase 3: Stakeholder Governance – After the Founder and A shares have been repurchased, B shares convert to A shares, and stakeholders govern the company through the DAO.

By adhering to the Founders Contract, a company can ensure fair compensation for all involved parties while fostering a democratic, sustainable, and innovative business environment that benefits its stakeholders and the broader economy.

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