A minimal end-to-end example
This example follows a small organisation through four years. It illustrates how short term payment and temporary compensation and governance rights can be kept separate. The figures are hypothetical. They are not pilot results, a recommended compensation level or a complete accounting model.
The arrangement
Alice starts a small design organisation in year one. Bob joins in year two. Alice leaves at the end of year two. Bob continues through years three and four. The arrangement provides:
Agreed annual compensation for each person’s part-time role.
One hundred participation units for each completed eligible year.
Rights that last for a three-year period, including the year of issuance.
Equal voting among eligible active workers.
Separate protection of outstanding financial claims.
The compensation figures assume work and legal conditions under which the arrangement is permitted.
Initial finance
An investor provides £20,000. The organisation spends £12,000 on equipment, leaving £8,000 of opening cash. The financing agreement requires three scheduled annual payments of £8,000. Total scheduled repayment is therefore £24,000:
£20,000 provided.
£4,000 total financing return.
The investor receives no ordinary worker voting rights and no unlimited participation in later profits. The agreement provides appropriate information and financial protections.
Distribution policy
The organisation adopts the following simplified policy:
Meet operating cash costs and scheduled financing payments.
Retain at least £10,000 in cash.
Subject to that minimum, distribute half of the year’s positive operating cash remaining after scheduled financing payments.
Retain the rest for resilience and future investment.
The example assumes that each distribution is also legally permissible and supported by distributable funds under the actual legal structure. Cash availability alone would not establish that legal condition.
Operating cash flows
All figures in the table are in thousands of pounds. Ordinary cash costs include agreed compensation and the other assumed operating cash requirements. The financing payments are shown separately.
Item
Year 1
Year 2
Year 3
Year 4
Opening cash
8
10
17
25
Cash receipts
40
70
62
65
Ordinary cash costs
30
48
38
41
Operating cash generated
10
22
24
24
Financing payment
8
8
8
0
Contribution distribution
0
7
8
12
Closing cash
10
17
25
37
In year one, a distribution would breach the £10,000 cash minimum, so none is made.
In year two, £14,000 remains after the financing payment. Half is distributed.
In year three, £16,000 remains after the financing payment. Half is distributed.
In year four, the financing has been repaid. Half of the £24,000 operating cash generated is distributed.
Current compensation
For simplicity, Alice receives £12,000 in each of years one and two.
Bob receives £12,000 in each of years two, three and four.
These payments are included in ordinary cash costs. There is no unpaid salary in this example. Current compensation totals are therefore:
Alice: £24,000.
Bob: £36,000.
Their additional compensation payments are calculated separately.
Participation units
Distributions occur immediately before the relevant year-end units expire.
Distribution date
Alice’s active units
Bob’s active units
Total
End of year 1
100
0
100
End of year 2
200
100
300
End of year 3
200
200
400
End of year 4
100
300
400
Alice’s year-one units expire after the year-three distribution.
Her year-two units expire after the year-four distribution.
Bob continues receiving new units for his work.
Distribution payments
Contributor
Year 1
Year 2
Year 3
Year 4
Total
Alice
£0
£4,666.67
£4,000
£3,000
£11,666.67
Bob
£0
£2,333.33
£4,000
£9,000
£15,333.33
Total
£0
£7,000
£8,000
£12,000
£27,000
Rounding is applied consistently. The figures show that Alice can receive recognition for historical work after leaving, while Bob’s participation increases through continuing work and the expiry of older claims.
Governance
Alice governs as the only active worker in year one.
Alice and Bob have equal ordinary votes in year two.
Bob is the only active worker in years three and four.
Alice no longer votes on ordinary operations, but Bob cannot simply cancel her remaining compensation rights.
The constitution and agreements should also prevent avoidance through excessive related-party payments, asset transfers or other actions intended to defeat her entitlement.
What happens to retained cash?
At the end of year four, the organisation retains £37,000. That money belongs to the organisation. It is not automatically Bob’s personal property merely because he is the remaining active worker. The governing documents must specify how retained assets are treated on future distributions, sale or dissolution.
What the example establishes
The example demonstrates an internally reconcilable arrangement. It does not establish that:
Three years is the correct duration.
Equal annual units accurately measure value.
The financing terms are commercially available.
The retention policy is optimal.
The outcome is fairer than every alternative.
Those questions require comparison and testing.
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