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Shareholder-as-Lender Framework — Lantern ​

Effective Date: 2026-01-09
Status: Constitutional Document (requires 75% employee vote to amend)

Purpose ​

This document redefines the concept of "shareholders" at Lantern to align with our employee-owned, mission-first structure. Traditional equity shareholders gain voting control and decision-making power, which can lead to mission drift and greed-driven decisions. At Lantern, we use a lender model instead.

Core Principle: Shareholders Are Lenders, Not Owners ​

Traditional Model (What We Avoid) ​

  • Shareholders buy equity → gain voting rights → control business decisions
  • Investors prioritize returns → pressure for exits, layoffs, cost-cutting
  • Mission drift: original purpose sacrificed for profit maximization

Lantern Model (What We Do) ​

  • "Shareholders" provide loans with fixed interest rates
  • Lenders receive no voting rights and no decision-making power
  • Lenders have creditor status only: right to repayment + interest
  • All business decisions remain with employee-owners

Key Definitions ​

Lender (Not Shareholder) ​

  • Legal status: Creditor, not equity holder
  • Rights: Repayment of principal + agreed interest rate
  • Restrictions: Zero voting rights, zero governance participation, zero profit sharing beyond interest
  • Exit: Loan repayment according to agreed schedule (cannot "sell shares")

Employee-Owner (True Shareholder) ​

  • Legal status: Worker cooperative member or ESOP participant
  • Rights: Voting, governance, profit sharing, decision-making
  • Restrictions: Cannot transfer ownership to non-employees without 75% vote
  • Exit: Buyback at fair market value when leaving employment

Lender Categories & Terms ​

If Lantern ever seeks external funding, the following categories apply:

1. Revenue-Based Financing (Preferred) ​

  • What: Lender provides capital; repaid as % of monthly revenue
  • Interest: Fixed percentage (e.g., 1.3–1.5× principal)
  • Repayment: Monthly, based on revenue (e.g., 5% of gross revenue until repaid)
  • Term: Self-liquidating (typically 3–5 years)
  • No equity: Zero ownership, zero control
  • Example: Borrow 100,000, repay 130,000 over time at 5% of monthly revenue

2. Fixed-Term Loans ​

  • What: Traditional debt with fixed interest rate and repayment schedule
  • Interest: Market rate (e.g., 6–10% APR)
  • Repayment: Monthly or quarterly installments
  • Term: 3–7 years
  • No equity: Zero ownership, zero control
  • Example: Borrow 50,000 at 8% APR, repay over 5 years

3. Convertible Notes (STRONGLY DISCOURAGED) ​

  • What: Loan that converts to equity if certain conditions are met
  • Why avoid: Can dilute employee ownership and introduce outside voting control
  • If unavoidable: Must include employee consent clause (75% vote required) and mission lock protections
  • Safeguard: Conversion triggers only after employee approval; voting rights remain with employees via golden share

4. Community-Supported Loans (Preferred for Small Amounts) ​

  • What: Small loans from community members, customers, or supporters
  • Interest: Low (e.g., 3–5% APR) or zero-interest for mission alignment
  • Repayment: Flexible schedule based on cash flow
  • Term: 2–5 years
  • Benefits: Aligns funders with mission; low risk; community goodwill

Lender Rights (Limited & Explicit) ​

Lenders at Lantern have the following LIMITED rights:

Financial Rights ​

✅ Right to repayment of principal according to agreed schedule
✅ Right to agreed interest payments
✅ Right to financial transparency (quarterly reports on company health and repayment capacity)
✅ Right to priority repayment in case of dissolution (creditor status)

Information Rights ​

✅ Right to annual summary financial statements (revenue, expenses, runway)
✅ Right to notification of major financial events (e.g., bankruptcy, acquisition offers)

Prohibited Rights ​

❌ NO voting rights on any business decisions
❌ NO board seats or governance participation
❌ NO veto power over hiring, strategy, or operations
❌ NO profit sharing beyond agreed interest
❌ NO equity conversion without 75% employee vote
❌ NO transfer of loan to third parties without employee consent

Employee-Owner Rights (Complete Decision-Making Power) ​

All business decisions remain with employee-owners:

Strategic Decisions (Requires 75% Supermajority) ​

  • Mission or values changes
  • Ownership structure changes (e.g., adding equity investors)
  • Mergers, acquisitions, or asset sales
  • Amendments to this framework
  • Major capital decisions (e.g., taking loans >100,000)

Operational Decisions (Requires Majority Vote) ​

  • Hiring decisions above certain level
  • Compensation structure changes
  • New product features or pivots
  • Marketing and sales strategies
  • Workspace and benefits policies

Day-to-Day Decisions (Delegated Authority) ​

  • Assigned roles have authority within scope (e.g., CTO decides tech stack)
  • Transparency required; any employee can call for review vote

Safeguards Against Greed & Mission Drift ​

1. Debt Cap ​

  • Maximum debt-to-revenue ratio: 2:1 (cannot borrow more than 2× annual revenue)
  • Reasoning: Prevents unsustainable debt that forces profit-maximizing behavior
  • Override: Requires 75% employee vote

2. Interest Rate Cap ​

  • Maximum interest rate: 15% APR (prevents predatory lending)
  • Preferred range: 5–10% APR for mission-aligned lenders
  • Reasoning: High interest forces layoffs and cost-cutting to service debt

3. No Equity Conversion Without Consent ​

  • Any loan-to-equity conversion requires 75% employee vote
  • Reasoning: Prevents lenders from gaining backdoor control
  • Exception: Pre-approved convertible notes with mission lock protections

4. Stewardship Board Veto (Golden Share) ​

  • Independent stewardship board holds veto power over:
    • Loan agreements that threaten employee control
    • Mission-violating financial decisions
    • Attempts to circumvent lender restrictions
  • Composition: 3–7 trustees (legal, community, mission-aligned advisors)
  • Term: 3-year rotating terms; replaced by employee vote

5. Repayment Priority Over Profit ​

  • If cash flow tightens: Loan repayment takes priority over employee profit sharing
  • Reasoning: Protects company solvency; ensures lender trust
  • Safeguard: Employees share sacrifice equally (no executive bonuses during hardship)

6. No Personal Guarantees ​

  • Loans are corporate debt only; no employee personal liability
  • Reasoning: Prevents lenders from forcing decisions via personal financial pressure

7. Transparent Lender Registry ​

  • Public registry of all lenders, loan amounts, interest rates, and terms
  • Published quarterly in employee-accessible financial reports
  • Reasoning: Transparency prevents hidden deals and conflicts of interest

Decision-Making Authority Matrix ​

Decision TypeAuthorityVote RequiredLender Involvement
Strategic (mission, ownership, M&A)Employee-owners75% supermajorityInformation only
Major capital (loans >100K)Employee-owners75% supermajorityInformation only
Operational (hiring, compensation, products)Employee-ownersMajority (>50%)None
Day-to-day (delegated scope)Role-based authorityNone (transparency required)None
Loan terms negotiationDesignated negotiator + employee approval75% for final termsNegotiation partner
Lender financial reportingFinance roleNoneReceives reports

Key principle: Lenders are NEVER part of decision-making. They are informed stakeholders only.

Enforcement & Violations ​

Lender Violations ​

If a lender attempts to:

  • Demand voting rights or governance participation
  • Pressure employees for business decisions
  • Circumvent lending terms to gain control
  • Threaten employees or withhold agreed payments

Response:

  1. Immediate notification to Stewardship Board
  2. Formal warning and terms clarification
  3. Option to accelerate repayment and terminate relationship
  4. Legal action if necessary

Employee-Owner Violations ​

If employees attempt to:

  • Grant lenders decision-making power without 75% vote
  • Hide lending terms from other employees
  • Accept equity conversion without proper approval

Response:

  1. Internal investigation by rotating employee committee
  2. Remediation: reverse decision, restore proper governance
  3. Potential termination for intentional violations

Why This Model Protects Lantern ​

Protection from Greed ​

  • No profit pressure from investors: Lenders get fixed interest, not profit share
  • No exit pressure: Lenders can't force acquisition or IPO
  • No layoff pressure: Debt service is predictable; no need to maximize margins for investors

Protection from Takeover ​

  • No equity dilution: Employees always maintain 100% ownership
  • No voting control shift: Lenders have zero votes, forever
  • Stewardship board veto: Mission lock prevents circumvention

Mission Alignment ​

  • Employee decisions only: Mission stays with those who built it
  • Transparent governance: No backroom deals or hidden interests
  • Community trust: Lenders are supporters, not controllers

Funding Strategy (Ideally: Never Needed) ​

Lantern's goal is bootstrapped profitability. Lending is a last resort.

Preferred Order of Funding ​

  1. Revenue from merchants (sustainable, aligns incentives)
  2. Employee reinvestment (employees loan to company at low interest)
  3. Community-supported loans (customers/supporters, mission-aligned)
  4. Revenue-based financing (repaid from revenue, no equity)
  5. Fixed-term loans (traditional debt, reasonable interest)
  6. Convertible notes (LAST RESORT, requires 75% vote + mission lock)

Red Lines (Never Accept) ​

❌ Traditional VC equity investment (voting control + exit pressure)
❌ Equity stake >10% to any non-employee entity
❌ Board seats for non-employees without employee supermajority consent
❌ Loans with personal guarantees or predatory terms (>15% APR)

Comparison: Lender vs. Traditional Shareholder ​

AspectTraditional ShareholderLantern Lender
Legal statusEquity ownerCreditor
Voting rightsYes (proportional to shares)No
Board seatsOften yesNo
Profit sharingDividends + capital gainsFixed interest only
Exit strategySell shares or force acquisitionLoan repayment schedule
Decision powerHigh (can outvote founders)Zero
RiskCan lose entire investmentRepayment priority in bankruptcy
UpsideUnlimited (stock price)Capped (interest rate)
DownsideUnlimited (stock can go to zero)Principal at risk if bankruptcy

Communication with Potential Lenders ​

When approached by potential funders, use this language:

"Lantern is an employee-owned cooperative. We don't offer equity investment or voting control. If you're interested in supporting our mission, we can discuss lending terms with a fixed interest rate and repayment schedule. You would have creditor status only—no governance participation, no board seats, no voting rights.

We prioritize bootstrapped profitability and only consider lending if essential for growth. If you're mission-aligned and comfortable with these terms, we'd love to discuss further. If you require equity or decision-making power, Lantern is not a fit."

Amendment Process ​

This framework is a constitutional document:

  • Requires 75% employee-owner vote to amend
  • Annual review during employee governance meeting
  • Amendments proposed with 30-day review period
  • Anonymous voting required

Final Note ​

This framework ensures that "shareholders" at Lantern are supporters, not controllers. They provide capital when needed and receive fair interest, but all decisions remain with the people who build, run, and care about Lantern's mission: the employee-owners.

If you believe this framework should be amended, propose changes through the employee governance process. Transparency and employee consent are non-negotiable.

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