A modest proposal for a business model...

I work at a public agency that often and routinely buys land for public use. Because of bureaucracy it is difficult to amass purchase prices and costs for acquisition and then turn around and disperse the money for a settlement. One of the best ways to solve this problem is to use an intermediary. Usually a land trust would fill this position. Unfortunately, in recent years land trusts have also become businesses. They have employees, boards and overhead. It can now take as long to get a land that approval as a governmental approval.

I also have friends and acquaintances that desire to do certain social justice or scientific projects. These may require grant funding which cannot or should not go to an individual. An individual could incur inordinate tax liability. In addition, an individual doing these projects takes on liability personally. This is very poignant for me personally. I am an attorney interested in public interest litigation. However, I do not desire to have a public interest law firm. There are too many IRS rules about such firms. I do not want to form a separate entity. I need an entity to hold and raise funds separate from the law firm, but which can work closely with the firm on financial matters.

Because of these types of issues I have been trying to think of a solution and have considered a form of business's organization that is unusual, to say the least. Rather than a partnership (that does not solve the need for limits liability) I have been thinking of various forms of corporations, Limited Liability Corporations and Limited Partnerships. One of the problems with all of these forms is the existence of partners or shareholders. Another problem is that having head entities be tax exempt (or 501(c)(3)) implicates impossible IRS requirements that increase overhead and bloat.

This has led me to the form I am considering. Start with a generic for profit corporation. This provides limited liability. Being for profit means there are no special regulations about spending capital. In other words, no one needs to worry about accumulating capital.

That leaves two problems. First, how to get rid of shareholders so the corporation does not have a fiduciary duty to only make money. Second, how to get rid of the board and still provide some measure of corporate governance.

In order to meet both objectives, I propose to have the corporation be membership based. So, for instance, people would become members each year for a nominal fee. This fee could pay any overhead expenses and continue to accumulate from year to year free from any need to distribute to stockholders. Only members could propose projects and only members could vote on projects. In a modern world with electronic communications, voting would be relatively easy. Each project would need to be self sustaining, as the business has no employees, directors and very few officers. In other words, the corporation is actually a limited liability shell for an association of disparate people.

The tax consequences still need to be further explored, but for simple projects like land acquisition or raising funds for litigation, taxes would be very straightforward. Essentially, the corporation would act as trustee or straw party by contract and should only bear tax liability for any overhead income received. Because this overhead is presumably going to expenses, most of the income should be offset by costs. Effectively creating a for profit corporation with no profit.