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Project with profit sharing between collaborators

In traditional capitalist economy, workers are paid on the time basis. Investor receives their part on the form of profit or lost. This System is justified on an economy in which the creativity of employee is not need and so as their responsibility. Workers have no responsibilities in the project so it is justified that the profit and lost is reserved to investors. And, workers have a guarantee payment depending of their time and not on the benefit of the business from which they have no responsibility. This System has the merit of simplicity and it is justified in the Industry where decision marker are investors.

But, in computer, multimedia and movies making industry, the creativity of the worker is the main source of profit. So, the worker has the responsibility to be creative. It is then necessary to share profit and responsibility between worker and investors. In this economic sector, worker are in fact entreprenor so we will call them collaborator.

So, instead receive a fix amount according to market rate, workers will bring a work value fixed at the double of the local salary of the market rate and invest 50 to 100 % of it in the project. So, it will be considered the collaborator invest a part of their time in the project as investor do. So, it will be determine the participation of each worker in percentage and that will determine how the profit of the project will be shared.

Consider the example of a video game programming, the project involve three investors called A,B and EASTERN TECHNOLOGY and three workers called A, D,E. A is at the same investor and worker. The project start on the year 2000. The project is organized and made on the name of EASTERN TECHNOLOGY so EASTERN TECHNOLOGY (ET) is allowed to take 20 % on the profit margin of the project to finance project organization cost.

The work value of A, D,E is fixed at 10 000 Rs a month. A has decided to receive no salary so he will invest 120 000 Rs a year in the project. D will receive 5000 Rs a month of salary so D will invest 60 000 Rs a year in the project. E will receive 2500 Rs salary so E will invest 90 000 Rs a year in the project.

A will bring 500 000 Rs as capital to pay computers, software, and salary of D and E. B will bring 200 000 Rs, and its house with a rent evaluated at 40 000 Rs. C will bring 100 000 Rs.

So, at the year 2000, the participation is:

A: 500 000 Rs

B: 200 000 Rs

C: 100 000 Rs

D: 0 Rs

E: 0 Rs

Year 2001: After one year work, the participation is:

PartA = 500 000 + 120 000 Rs = 620 000 Rs

PartB = 200 000 + 40 000 Rs = 240 000 Rs

PartET = 100 000 Rs

PartD = 60 000 Rs

PartE = 90 000 Rs

At year 2003, when the video game start to be sold, the participation is:

PartA = 620 000 Rs + 2 * 120 000 = 860 000 Rs

PartB = 240 000 Rs + 2 * 40 000 = 320 000 Rs

PartET= 100 000 Rs

PartD= 60 000 Rs + 2 * 60000 = 180 000 Rs

PartE = 90 000 Rs+ 2 * 90 000 = 270 000 Rs

So, the global investment is 1 730 000 Rs

The participation of EASTERN TECHNOLOGY is considered at a fix ratio of 20 %.

The sell has generated Margin2003 = 500 000 Rs profit margin.

So, each participant will receive:

PartA = 80 % * ( 860 000/ 1730 000) * 500 000 = 3,97 % * 500 0000 = 198 843 Rs

PartB = 80 % * (320 000/ 1730 000) * 500 000 = 73988 Rs

PartET = 80 % * (100 000/ 1730 000) * 500 000 + 500 000 * 20 % = 123121 Rs

PartD= 41618 Rs

PartE= 62427 Rs

PartET is put in the reserve of ET to finance other project. PartB is given to B minus various tax taken by the government. PartD is put in the reserve of D but as the reserve of D is inferior to 100 000 Rs (Rights according to the reserve). D is paid 60 000 + PartD 41618 Rs = 101618 Rs. As 100 000 Rs is the limit for the reserve, D receive 100 000 Rs and 1618 Rs is put in the reserve of D. D keeps its reserve out of the video project.

For E, the condition is 30 000 Rs + 62427 Rs = .92427 Rs. E receive 92427 Rs and constitute no reserve.

Concerning A , the situation is more complex. A is as the same time an external investor and a collaborator. We should make the difference between how much A bring as an external investor and as a collaborator:

PartAInvestor = 80 % * ( 560 000/ 1730 000) * 500 000 = 118343

PartAWorker = 80 % * ( 3 * 120 000/ 1730 000) * 500 000 = 75739

A can take out of the company 118343 Rs as an investor without any reserve condition. Considering the 75739 Rs, it is inferior to 100 000 Rs so he can also take it out. He however decides to invest back 100 000 Rs and take out only 98843 Rs. His external investment will be of 500 000 + 100 000 = 600 000 Rs

A vendor called F is hired in order to sell more video game. Its work value is fixed to 6000 Rs with 50 % reinvest in the project

At the year 2004, the profit margin of the video game selling is 10 000 000 Rs

InvestorA 274285,714

WorkerA 137142,857

PartB 121904,762

PartET 238095,238

PartD 91428,5714

PartE 137142,857
 
D will receive 91428 Rs + 60 000 Rs = 141428 Rs so 41428 Rs is added to its reserve now 41428 + 1618 + 54 Rs (Interest rate on 1618) = 43100 Rs and D receive 100 000 Rs.

E will receive 137142 + 30 000 Rs = 167142 Rs that 67142 Rs for its reserve and 100 000 Rs payment.

Concerning A, A takes its 274285 as on external investor and put back 100 000 Rs in the project and takes a salary of 37142 Rs.

As the project becomes profitable, all collaborators wants to invest their reserve in the project. And, new investor called G wants to put 3 000 000 Rs in the project.

And, it is established that only 250 000 Rs new investment is required in the project. So, the priority investment list applies:

D, E, F and A have the priority so:

D invest 40 000 Rs taken from his reserve.

E invest 60 000 Rs in the project taken from his reserve.

F has to invest 36000 Rs in the project.

A invests 100 000 Rs in the project

B wants to reinvest 100 000 Rs in the project and take 21904 for him.

But, as only 50 000 Rs investment is left for external investor, B can only invest 14 000 Rs.

The new external investor is refused because there is not enough investment room in the project.

 

Priority investment list

To realize a project, there could have too much money or not enough. It is in the responsibility of EASTERN TECHNOLOGY to manage the project such as there is enough capital to handle it.

But as the project becomes profitable, many people wants to invest money in it even if there is no need to put this much. In the market economy, the share will rise up. In TPS, the priority investment list determine who has the priority investment in the project. The collaborators can invest their reserve in the project

The coordinator company (here EASTERN TECHNOLOGY) can invest in the project

The first investor can invest their profit in the project

New external investor can invest in the project The list defines the priority between investors.

 

Taking investment out

While the project has more investor then room for investment, it is possible for investor (which are not collaborator) to take some money out in selling their participation to other investor against a negotiation of the participation value depending of the value of the profit generated.

In this case, a quotation of the participation is made. Home | Contact