Imagine a corporation, a corporation or any type of capital entity financially but not legally structured as a foundation, raising a large amount of money, without spending any of it
Through an initial public or private subscription, the initial capital would be of a high amount, for example a hundred million dollars.
When the corporation generates profit, the corporation adds it to the initial capital raised and thus, increases its next year budget. Management and staff bonuses are directly indexed on this budget, thus increased.
When the corporation generates a loss, the corporation pays to its shareholders the same amount of the loss as dividends, deducting it from the initial capital raised and thus, decreases its next year budget. Management and staff bonuses are directly indexed on this budget, thus decreased.
The resulting long term stability arising from this system is amazing because Management can no longer ignore, neglect or procrastinate shareholder value. All parties’ interests between Management, Staff, Investors, Shareholders and Creditors are aligned.
Its annual budget including tax could not exceed his assets in cash multiplied by the annual interest rate as a percentage guaranteed by its banks collectively.
By this formula we would create a corporation that I call perpetual, because apart from the imponderables such as liabilities or tax increases, the corporation could theoretically last for centuries or even indefinitely.
As long as the inequality that says the operating budget must always be less than the risk-free income produced by the initial capital investment would be verified, there would be no risk other than the risks attached to the investment of capital.
If we imagine an investment in US Treasury bonds, that risk would be low to negligible. It would be limited to default in case of World War. Moreover, that risk is insurable.
Do You realize these competitive advantages of the Perpetual Corporation?
- The management could always think long-term.
- It would have endless bargaining power within its means.
- Thus it would never have to accept a compromised deal.
- Its growth on the stock exchange would be steady.
- Nobody would have to worry about the corporate existence.
I could go on and on for hours about the quality of this new kind of corporation.
The idea presented in this article is of a ‘perpetual corporation,’ a financial entity that operates in a unique way to secure its longevity.
Here are 20 potential advantages of such a model:
- Long-term Stability: A perpetual corporation can offer long-term stability due to its structure and operating principles.
- Aligned Interests: The interests of management, staff, investors, shareholders, and creditors are aligned, reducing potential conflicts.
- Sustainable Operations: Only a portion of the interest generated from investments is used for operational expenses, ensuring the corporation’s sustainability.
- Profit Reinvestment: Any profits generated are added back to the initial capital, which can increase the corporation’s budget and potential for growth.
- Loss Management: In case of a loss, dividends are paid to shareholders, aligning their interests with the corporation’s financial performance.
- Incentive for Performance: Management and staff bonuses are directly indexed to the corporation’s budget, providing a direct incentive for improved performance.
- Budget Limitations: The corporation’s annual budget, including taxes, can’t exceed its cash assets multiplied by the guaranteed annual interest rate, enforcing fiscal responsibility.
- Perpetuity: The corporation could theoretically last indefinitely, barring unforeseen liabilities or tax increases.
- Low Risk: As long as the operating budget is less than the risk-free income produced by the initial capital, the corporation is at minimal financial risk.
- Risk Management: Potential risks, like default, are insurable, further reducing financial risk.
- Potential for High Initial Capital: The corporation could potentially raise a substantial amount of initial capital through public or private subscription.
- Diversified Investments: The corporation can invest in a mix of real estate and fixed income securities, diversifying its portfolio.
- Predictable Budgeting: The budgeting process is predictable, based on clear rules and financial performance.
- Sustainable Dividend Policy: The dividend policy is sustainable as it is tied to the corporation’s financial performance.
- Positive Impact on Credit: The financial stability of the corporation could potentially lead to a positive credit rating.
- Encourages Prudent Investment: The structure encourages prudent investment strategies to ensure the generation of interest.
- Crisis Resilience: The corporation has built-in resilience to financial downturns due to its structure.
- Maintains Shareholder Value: The model ensures that management can’t neglect or procrastinate shareholder value.
- Potential for Growth: If managed well, the corporation has potential for growth through reinvestment of profits.
- Low Volatility: The corporation’s structure and operating principles could potentially result in lower volatility compared to traditional corporations.
The Perpetual Corporation envisions a future where the stability and longevity of a corporation are no longer bound by the volatile whims of short-term market fluctuations, but rather assured through prudent, long-term financial management.
The Perpetual Corporation's Mission is to align the interests of all stakeholders - management, staff, investors, shareholders, and creditors - around the principle of sustainable growth. The aim is to build an organization that, through careful investment and fiscal responsibility, can generate consistent, risk-adjusted returns.
In doing so, the Perpetual Corporation endeavours to redefine the traditional corporation model, creating a more resilient, sustainable, and enduring organization that serves the interests of all its stakeholders for generations to come.