Participation systems and methods

Techniques, including computer-implemented methods, systems, and apparatus, for establishing a contractual relationship between two parties based on a segregated contract participation unit. The techniques include offering to a set of potential investors, on an electronic exchange, a segregated contract participation unit to purchase an economic participatory interest associated with a specific aspect of an issuer operation, and upon purchase of the segregated contract participation unit by a specific investor of the set of potential investors, establishing a contractual relationship between the issuer and the specific investor that binds the issuer to execute a set of obligations according to terms specified in the segregated contract participation unit.

BACKGROUND

This invention relates to participation systems and methods.

Entities can desire to raise capital for various purposes such as financing a new operation, financing specific activities, and/or financing purchase of a set of assets. The company seeking to raise capital can raise the capital in a variety of ways.

One way in which companies can raise capital is by issuing equity securities (e.g., stock). A share of stock in a company represents a claim on a proportional share of the company's value which is reflected in the price of the stock. Equity represents an ownership share of the issuer. As such, the value of the stock reflects the assets, the expected operating results, and the perceived risks of the entire entity as a whole.

Companies can also raise capital by taking on debt rather than selling ownership, for example, by borrowing money from banks and other lending institutions or by issuing bonds. A bond does not represent a partial ownership in the issuing company; the bond represents an absolute legal commitment by the company to pay the bondholder in a pre-specified manner. The price of a bond will reflect both the creditworthiness of the issuer as well as the “market risk” relevant to the issuance.

SUMMARY

In general, in one aspect, the invention features a computer-implemented method for establishing a contractual relationship between two parties based on a segregated contract participation unit, in which the method includes offering to a set of potential investors, on an electronic exchange, a segregated contract participation unit to purchase an economic participatory interest associated with a specific aspect of an issuer operation, and upon purchase of the segregated contract participation unit by a specific investor of the set of potential investors, establishing a contractual relationship between the issuer and the specific investor that binds the issuer to execute a set of obligations according to terms specified in the segregated contract participation unit.

Embodiments of the invention may include one or more of the following features.

The set of potential investors may include one of an open set of potential investors, a restricted set of potential investors, or a specific set of potential investors.

The specific aspect of the issuer operation may include at least one of an activity, asset, or project related to a product or service of the issuer.

The specific aspect of the issuer operation may include at least one of an activity, asset of project related to an operation of the issuer in a particular location.

The computer-implemented method of offering the segregated contract participation unit may include offering the segregated contract participation unit for a specified amount of money.

The computer-implemented method of offering the segregated contract participation unit may include offering the segregated contract participation unit in exchange for a product or component provided by the purchaser.

The computer-implemented method of offering the segregated contract participation unit may include offering the segregated contract participation unit in full or partial exchange for a service provided by the purchaser.

In general, in another aspect, the invention features a computer-implemented method for managing the generation and sale of segregated contract participation units, in which the method includes receiving a qualified operating agreement from an issuer, the qualified operating agreement specifying an economic participatory interest associated with a specific aspect of an issuer operation and forming the basis for a segregated contract participation unit offered to purchasers, validating the qualified operating agreement, registering the qualified operating agreement on an economic participation market, and providing the segregated contract participation unit based on the qualified operating agreement, wherein the segregated contract participation unit establishes a contractual relationship between the issuer and a purchaser of the segregated contract participation unit.

Embodiments of the invention may include one or more of the following features.

The qualified operating agreement may include information about an activity basis for the segregated contract participation units, and logic for calculating the proceeds payable for each segregated contract participation unit.

The qualified operating agreement may include information about a set of investors eligible to purchase the segregated contract participation units.

The qualified operating agreement may include information about disclosure requirements.

The qualified operating agreement may include information about amendment rules.

The computer-implemented method of validating the qualified operating agreement may include determining whether the qualified operating agreement includes required information.

The computer-implemented method of validating the qualified operating agreement may include determining if the qualified operating agreement is correctly structured.

The computer-implemented method may further include recording information about a purchaser of the segregated contract participation unit in a database.

The computer-implemented method may further include distributing proceeds of the segregated contract participation unit to the holder.

In general, in another aspect, the invention features a computer-implemented method of trading segregated contract participation units that includes accessing, using a computer system, information including one or more of a performance metric and external data related to an activity basis for the segregated contract participation unit, wherein the segregated contract participation unit establishes a contractual relationship between a holder of the segregated contract participation unit and an issuer of the segregated contract participation unit and the activity basis provides an economic foundation for the proceeds payable for the segregated contract participation unit, and trading the segregated contract participation unit on a trading venue by buyers and holders determining a price between the buyer and the seller for the segregated contract participation unit taking into account the information including the one or more of a performance metric and external data.

Embodiments of the invention may include one or more of the following features.

The computer-implemented method may further include receiving information from the issuer of the segregated contract participation unit about the performance metric.

The computer-implemented method may further include recording an executed trade in a computer database.

The computer-implemented method may further include severing a contractual relationship between the seller and the issuer of the segregated contract participation unit subsequent to execution of a trade, and establishing a contractual relationship between the buyer and the issuer of the segregated contract participation unit subsequent to execution of a trade.

The computer-implemented method may further include restricting a set of buyers of the segregated contract participation unit to a limited class of investors.

The computer-implemented method may further include distributing proceeds from the segregated contract participation unit to a holder of the segregated contract participation unit based on a distribution calculation included in a qualified operating agreement associated with the segregated contract participation unit.

Other general aspects include other combinations of the aspects and features described above and other aspects and features expressed as methods, apparatus, systems, computer program products, and in other ways

In some embodiments, the economic participation market, qualified operating agreements, and segregated contract participation units issued by an issuer and offered on the economic participation market can create mechanism and marketplace for both private and public companies to raise capital. This method of raising capital allows the capital to be raised according to the specific terms of a contractual participation agreement and available to a universe of participants that is unlimited in its potential size and diversity. Exemplary participants include trading partners, other operating entities, financial investors, and/or speculators.

The economic participation market can provide the advantage of widening the spectrum of alternatives that companies have for raising funds and that investors have for participating in risks and rewards associated with specific economic activities. The financial contracts created and traded on the economic participation market can also provide the advantage of efficiency. It is believed that the segregated contract participation units can be more economically efficient than existing financing methods such as debt and equity stock because their risk, and therefore their pricing, is a function of specific and focused sets of variables.

DESCRIPTION

Referring toFIG. 1, a computer system10includes software to assist with creation and issuance12a, administration12b, redemption12c, and trading12dof segregated contract participation units. Although a single computer system10is shown, typically many such systems can be used and indeed each of the software processes can be performed on different computers, controlled by or managed by different entities that are involved in any of the aspects of the segregated contract participation units

1 The Economic Participation Market

Referring toFIG. 2, an economic participation market26is used to facilitate the creation, issuance, and administration of segregated contract participation units24. Segregated contract participation units24form a contractual relationship between an entity (referred to herein as issuer20) that issues the segregated contract participation unit24and investors in the segregated contract participation units (referred to herein as investors28) that purchase the segregated contract participation units24. The formation of this contractual relationship is facilitated by the economic participation market26. The economic participation market26provides central processing engines and communication links between the multiple different participants involved in the generation, sale, and redemption of the segregated contract participation units24.

The economic participation market26provides a market in which corporate entities (e.g., issuer20) can offer to sell and sell economic participation in specific aspects of an issuer operation to a universe of investors and partners (e.g., investor28). Examples of aspects of an issuer operation include activities, assets, and/or projects, associated with the issuer20. The universe of investors and partners can be specified by the issuer20and therefore, is not restricted in its potential size and diversity. For example, the issuer20could specify that the universe of potential buyers is not restricted and thereby allow any investor to purchase the CPUs. On the other hand, the issuer could place one or more restrictions on who is eligible to purchase the CPUs. As such, the set of investors to which the CPUs are sold can be an open set of investors, a restricted set of investors, and/or a specific set of investors.

An Issuer20sells participation in a given aspect of an issuer operation by issuing a set of contractual participation units24whose legal and economic rights are tied to a set of the underlying activities, assets and/or projects and are specified in a qualified operating agreement, (QOA)22. The economic participation market26facilitates the issuance of the contractual participation units24by the investor as described herein. Investors28acquire economic participation in the aspect of an issuer operation by purchasing CPUs24. The investors28can purchase the CPUs24from either the Issuer20or other holders of CPUs24such as distributors, broker/dealers, or individual holders selling part or whole of their position. The purchase of a CPU24forms a contractual relationship between the issuer20and the investor28.

In general, the economic participation market26provides a market in which the issuers20can sell segregated contract participation units24to investors28(e.g., one in which any registered issuer20can sell to any investor28). The set of investors who can purchase a particular CPU from the issuer can be open, restricted, or specific. For example, an issuer20can restrict the size, the type and even the identity of those to which its CPUs24will be offered. Restrictions such as these can be specified in the QOA22.

In addition, the issuer20can issue CPUs24on any basis (e.g., in contrast to stock where the full valuation of the stock is based on the valuation of some corporate entity or subsidiary thereof). In the economic participation market26the basis of a CPU24can be any endeavor, activity, project or set of assets that the issuer20defines in a QOA22. As such, the economic participation market26facilitates a market in which an issuer20can sell participation in any aspect of its operation the issuer20desires on a market that is as open or as restricted as the issuer20wants it to be.

Referring toFIG. 3, a process50for managing the formation, administration, and settlement of contracts established based on the segregated contract participation units24in the economic participation market26, each of which will be discussed in more detail to follow. Prior to participating on the economic participation market26(e.g., selling segregated contract participation units, purchasing segregated contract participation units, or performing other functions associated with the economic participation market), the economic participation market26registers the individual or entity (52). After being registered an issuer20can generate and submit QOAs to the economic participation market26. The economic participation market26processes the received qualified operating agreements (54). The issuer20also generates and submits CPU agreements to the economic participation market26based on a QOA22that has been previously processed. The CPU agreement specifies the terms of a CPU issued based on such CPU agreement. The economic participation market26processes the received CPUs (55) and allows the issuer to issue segregated contract participation units24based on the processed CPU agreement (56). After the issuer20(through the economic participation market26) issues the segregated contract participation units24, the economic participation market26manages the segregated contract participation units24(58) and subject to the terms of the qualified operating agreement22and the segregated contract participation units24collects and distributes proceeds of the segregated contract participation units24to the investors28(60).

The economic participation market26includes a mechanism enabling electronic registration of individuals and entities associated with the economic participation market26. In general, individuals and entities that transact and/or interact with the economic participation market26are registered before engaging in the relevant workflow processes. The economic participation market26can require different information depending on participant type. At a minimum, the economic participation market26receives a basic set of identity and contact information for the person or entity during the registration process. However, for certain types of market participants, it can be required or beneficial to receive additional information.

For participant types that represent entities with multiple people, a single representative could perform the electronic registration. If necessary or desired, this representative specifies that multiple user accounts should be created, optionally assigning different permissions to the multiple accounts. In addition to the electronic registration, in some embodiments the economic participation market26manually interacts with authorized agents to verify identity, obtain notarized signature of legal documents, etc.

Based on the registration process, the economic participation market26generates and stores a data record for the participant. The data record can be stored in a database linked to the appropriate data that will be created and processed in the system moving forward—primarily QOAs, CPUs and Disclosure Filings. The economic participation market26can assign a set of permissions to an account associated with a participant type. The permissions can allow a particular individual or entity to perform a limited set of tasks on the economic participation market26. For example, an issuer20could have permissions to generate a qualified operating agreement, but not have permission to approve the qualified operating agreement.

3 Processing of Qualified Operating Agreements

As described above in relation toFIG. 3, the economic participation market26processes qualified operating agreements and segregated contract participation unit agreements prior to enabling the issuer to issue segregated contract participation units based on the QOAs and CPU agreements. Any company that desires to issue segregated contract participation units in some aspect of an issuer operation authors a QOA and CPU agreements and has them approved by the appropriate review authorities and legal agencies. The economic participation market26mandates such a review because once the CPUs are issued, the QOA22becomes the binding legal contract between Issuers20and investors28. By completing the QOA22and issuing CPUs24, the issuer20legally binds itself to execute a set of obligations in the exact way it specifies in the QOA22. Investors28who have purchased CPUs24either directly from an Issuer20, or indirectly through the secondary market, can refer to the QOA22as a binding agreement in the event that they wish to make any claim of breach of contract against the Issuer20.

The Economic participation market26provides the network in which QOAs22are registered and made available for review by a potential investor28. Various participants in the economic participation market26are involved in the related workflow processes.

IssuersAn Issuer is an entity, either privately orpublicly held, that sells CPUs in theeconomic participation market. A singleIssuer can sell multiple sets of CPUs andauthor multiple QOAs.Investor in segregatedAn Investor in a segregated contractcontractparticipation unit is an individual or entityparticipation unitsthat purchases CPUs in the EPM, either inthe primary market as part of a CPUissuance, or in the secondary market. CPUscan be bought directly over the EPM orthrough a distributor or a Broker/Dealer.CPU Broker/DealersA CPU Dealer is a person or entity whobuys and/or sells CPUs in the EPM for hisown account. A CPU Broker is an agentwho executes orders for CPUs in the EPMon behalf of CPU Dealers and Investor insegregated contract participation units. ACPU Broker/Dealer is simply an entity whoacts in both capacities.Review AuthoritiesA Review Authority is an entityresponsible for confirming that thestructure and content and disclosures ofQOAs meet the requirements set forth bythe EPM, before such QOAs aredisseminated in the market.Legal Services ProvidersA legal service provider is an entity thatprovides a legal service. The legal servicesproviders can include entities specializingin contract law, as QOAs representcontracts between Issuers and Investors inthe segregated contract participation units.Information ProvidersAn Information Provider is an externalentity that provides market data and/orstatistical information that Issuers use, inconjunction with internal performanceinformation, to calculate the requireddistribution of proceeds to Complex CPUInvestors as well as general performancemetrics of the activity basis of a set ofComplex CPUs. Reuters and Bloombergare examples of Information Providers.Participation MarketParticipation Market Analysts are entitiesAnalyststhat provide analyses and opinions relatedto the future performance and pricing ofCPUs, both before and after issuance. Theconsumers of this information includeInvestor in segregated contractparticipation units and potential Investor insegregated contract participation units aswell as Issuers and other service providersin the EPM. Participation Market Analystscan use mechanisms in the economicparticipation market for disseminating thisinformation to consumers.Distributor of CPUsA CPUs Distributor is an entity thatprovides distribution services for newlyissued CPUs by purchasing them fromIssuers and selling them to Investor.CPU Transfer AgentsAn Issuer can employ a CPU TransferAgent to act as a registrar for its CPUs,keeping track of the individuals and entitiesthat currently own them andcommunicating this information to Issuers.CPU Transfer Agents issue electroniccertificates of ownership to investors.Additionally, a CPU Transfer Agent canserve as an Issuer's paying agent todistribute proceeds to Investors.Micro-Accounting ServicesMicro-Accounting Services collectbusiness transaction information fromIssuers electronically over the economicparticipation market, aggregate, analyzeand organize this information and publish itto investors and other relevant partieselectronically. These processes arecompleted in real-time or with a pre-setfrequency, giving Investors a transparentview of the performance of their CPUs.Payment andPayment and Escrow Services processEscrow Servicescredit card, direct debit and various typesof online banking payments electronicallyover the economic participation market.They are used primarily to accept paymentsfrom Investors and transfer funds toIssuers, CPU Distributors and CPUBroker/Dealers upon meeting terms andconditions spelled out in the QOA andCPU agreements.

As shown inFIG. 4, a process70for processing the qualified operating agreements22prior to the issuer20issuing segregated contract participation units24includes authoring the qualified operating agreement (72), validating the qualified operating agreement (74), and registering the qualified operating agreement (76), each of which will be discussed in more detail herein.

Authoring the qualified operating agreement (72) is completed by the Issuer20with the possible help of other entities associated with the economic participation market26such as CPU Distributors and Legal Services. For example, CPU Distributors can be employed or engaged by the Issuer20to sell the CPUs24to investors28, and to aid in the authorship of the QOA22by helping the Issuer20construct a calculation methodology that will be used to measure the performance of the activities on which the issuer20desires to sell participation. Since the QOA22is a contract, legal services providers can be used to help draft the terms of the contract in a manner that protects both the issuer20and potential investors28. Legal services providers can also help to draft the contract in a form suitable to relevant review authorities associated with the economic participation market26, who are responsible for validating the QOA22before it is registered in the economic participation market26.

In general, there are no limits placed on the universe of activities on which companies can base a QOA and sell participation. For example, a company could sell participation in the performance of a particular branch, a particular region, a particular product, or a particular period of time. The performance can be measured in terms of revenues, profit, grows, or any other measurement clearly defined in the qualified operating agreement22. However, while the subject matter of the activities on which companies can sell participation is not limited, the economic participation market26does provide a pre-defined structure under which the contracts are formed. For example, a sale of participation, which is defined in a QOA22, includes a specific well defined set of information and/or include a specific set of sections. The set of information or sections can be pre-defined to allow the issuers20and investors28to clearly determine the content of the contract and their rights and responsibilities pursuant to the contract.

In order to generate a QOA22, an issuer20provides various types of information that form the information and sections of the QOA22.FIG. 5shows exemplary actions that the issuer20takes to generate the QOA22, such actions can occur in any order. Activities performed in defining the QOA22can include one or more of defining an activity basis (80), defining the investor universe (82), defining disclosure procedures and methods (84), defining rules for amending the QOA (86), and defining CPU logic (88). These actions (e.g., actions80,82,84,86, and88) can include one or more sub-actions. For example, defining the CPU logic (88) can include sub-actions such as defining calculation methodology (90), defining distribution of proceeds (92), defining participation holder rights (94), defining market and statistical data (96), defining options provisions (98), and defining conditions and calculations for payments and other obligations (100).

4 Activity Basis

As described above, one activity involved in generating the QOA22is to define the activity basis for the QOA22. An activity basis relates to the aspect of an issuer operation for which the issuer20is selling participation. The issuer20can sell participation in a wide range of different types of activities, projects and/or assets provided that the issuer20defines the details of the relevant activities or assets and delineates the accounting procedures and parameters that will be used to measure performance. The following examples illustrate what is meant here, however, other examples are possible.

For example, a retail company that is set to begin operations in China may wish to sell participation in the China operations. For example, the company could initially plan to open stores in Shanghai but also plan possible expansion into Beijing and other cities. The company could sell participation based on various aspects of this new endeavor. In the section of the QOA22in which it defines the Activity Basis, the company (serving as the issuer20of participation units) will specify exactly the part of its operations for which it is selling participation. For example, the activity basis would indicate whether the participation include possible future operations in Beijing and other cities, or be limited to only the initial stores in Shanghai. The issuer20also defines the accounting procedures and factors that define the economic basis for which it is offering participation—e.g. revenues, gross margins, percentage of gross profits, etc.

In another example, a privately owned Internet company with an advertising-based revenue model may desire to sell participation in its user base. For example, the company (serving as the issuer20of participation units) could desire to have the value of the CPUs that it issues be based on to the number of registered or active users without regard to any revenues, profits, etc. that it realizes from such users. Such an activity basis would be possible by specifying in the Activity Basis section of the QOA, exactly what set of users it refers to and how it will measure the relevant statistics, for example, registered users, unique page visitors, etc.

In another example, a consumer products company may desire to sell participation in a new product. For example, the company could desire to have the value of the CPUs that it issues be based on the success of the product. To accomplish such an objective the activity basis could be based on revenue earned from the product. An issuer may be willing to pay a high percentage of specific revenues for a few years with little or no residual rights provided after such initial period. In another example of the use of complex CPUs, a company may commit to pay an amount calculated based on the maximum between its actual earning from a certain activity or the product of its revenues times the average profit margin in its industry. Lastly, a company facing shortage of a critical component for its production line can pay its supplier with cash plus CPUs in return for the valuable components promising a percent of the revenues generated by the end product.

5 Define CPU Logic

As described above, another activity involved in generating the QOA22is to define the CPU logic. The CPU logic includes an explanation of the accounting parameters that the issuer20will use to establish the economic foundation of the aspect of an issuer operation for which it wishes to sell participation.

The CPU Logic sections include the specific sets of new participation units that the company will issue based on this Activity Basis. There can be a one-to-many relationship between the other sections of the QOA22(e.g., the activity basis, the investor in segregated contract participation unit universe, the disclosure requirements, and the amendment rules) and the CPU Logic section because an issuer20can issue many types of CPUs24for a given activity basis. Allowing a company (e.g., the issuer20) to generate different types of CPUs based on the same definitions in the other sections can provide the benefit of reducing time and effort for generating different types of CPUs24. The issuer20can issue multiple types of CPUs24with the initial registration of the QOA22and/or can issue new CPUs24once an initial set of CPUs24has already been issued. For example, if the issuer20finds that a CPU24with a particular set of terms is not selling well, the issuer20could issue another set of CPUs24with differing terms. In addition, the issuer20could generate different sets of CPUs24with differing terms to target different groups of investors. For example, an issuer20could offer a higher return on CPUs that are issued for a longer term or in a greater quantity. In addition, the differing CPUs24could provide participation with differing levels of risk.

For example, returning to the example of the retailer selling participation in new operations in China described above, the retailer may issue one set of CPUs related only to initial stores opened in Shanghai, and another set that will also pay proceeds based on any future operations in other cities. The Activity Basis section of the QOA can outline the accounting parameters that will be used as the basis for all stores, and each CPU Logic section will specify the stores relevant to the particular CPU24. This is one example of how, from a contractual and documentation perspective, the same elements of a QOA22can be referenced by multiple CPU Logic sections.

The economic participation market26can support multiple types of segregated contract participation units24. Two exemplary types of segregated contract participation units are basic contractual participation units (BCPUs) and Complex Contractual Participation Units (CCPUs). Basic contractual participation units refer to CPUs for which all performance metrics, calculations of proceeds to investors28are derived only from financial information and performance results internal to the issuer20and related to the activity basis. In contrast, Complex Contractual Participation Units are CPUs that use external data in addition to financial information and performance results internal to the issuer20and related to the activity basis in any related calculations. For example, in a CCPU, a company can include foreign exchange rates in the calculation of distribution of proceeds to investors28as well as internal accounting metrics associated with the Activity Basis. External data employed by CCPUs includes data available either publicly or privately to all holders of CPUs. In another example, a company could include the performance of a competitor's stock in the calculation.

As described above in relation toFIG. 5, the action of defining the CPU logic (88) can include sub-actions such as defining calculation methodology (90), defining distribution of proceeds (92), defining participation holder rights (94), defining market and statistical data (96), defining options provisions (98), and defining conditions or calculations for payments and other obligations (100), each of these exemplary sub-actions will be described below.

In defining the CPU logic, the Issuer20defines a calculation methodology. The calculation methodology specifies which accounting metrics will be used to calculate any proceeds paid out to investors28. Such metrics will be used by buyers, sellers, analysts and distributors. Each participant will use its own modeling of risk and value. This section can reference the pieces of the QOA's Activity Basis definition that are relevant to this specific offering of CPUs.

In defining the CPU logic, the issuer20defines the distribution of proceeds. Defining the distribution of proceeds includes defining the methodology and frequency of any distribution of income, interest, dividends and/or any other proceeds that it will pay to investors28holding the CPUs24. The issuer20also specifies the manner by which such proceeds will be paid; the economic participation market26will not necessarily act as the actual channel for distribution, but it will offer data processing services and provide technical communication interfaces to participating Electronic Payment Services.

In defining the CPU logic, the issuer20defines the rights of the participation holder. Exemplary rights of the participation holder include whether either the Issuer20and/or the investor28will have any option to redeem, convert exchange or trade any rights or obligation vested in a segregated contract participation unit. If such options are present, the terms of such options should be defined.

In defining the CPU logic, the Issuer20defines Market and Statistical Data that will be used in the calculation of the CPU. For example, if CCPUs are being issued, the issuer20specifies the details of the market and/or statistical data it will use to calculate performance metrics and distribution of proceeds. For example, the issuer20can specify that it will use the end-of-day mid-market foreign exchange rates as supplied by Reuters or various indexes published by the government, Dow Jones, etc.

In defining the CPU logic, the issuer20defines any options provisions. For example, the issuer20can add provisions for call or put options on the CPUs24being issued to protect itself or the investors. Such options can affect the attractiveness of the segregated contract participation units and their pricing.

In defining the CPU logic, the issuer20defines conditions for payments and other obligations of the participation holder28. For example, the issuer20can define a payment schedule or accepted methods of payment. The issuer may give the CPU holder other rights such as first refusal on buying additional CPUs to be issued in the future, discounted prices on buying certain products or services from the issuer etc.

6 Defining the Eligible Investors

In defining the CPU logic, the Issuer20also defines the set of individuals or entities that are eligible to be investors in segregated contract participation units (also referred to as the buyer universe). If a person is included in the set of individuals or entities that are eligible to be investors in segregated contract participation units the economic participation market26grants access to the QOA22to such individual or entity. For example, the issuer20can define the individuals or entities that are eligible to be investors28to be an unrestricted investor pool such that the QOA22will be available for reading and purchase by anyone who has registered in the EPM as an investor28. On the other hand, issuers20can restrict this universe to smaller groups of investors28as it sees fit, and different restrictions can apply to different CPU sections within one QOA22. In some cases the Issuer can retain the right to individually approve each potential investor.

7 Defining the Disclosure Procedures, Timing and Methods

In defining the CPU logic, the issuer20defines procedures, timing and methods for disclosures. For example, the issuer20can define when and how it will disseminate information related to the economic performance or measurement of the activity basis, as defined in the activity basis definition of the QOA22. Based on the logic defined in the QOA22, the economic participation market26provides dissemination facilities that allow issuers20to file such information and have it securely broadcasted to the relevant public or private audience over the network. No general mandates are made regarding the exact filings that Issuers20must produce, with the specific requirements set by the issuer and accepted by a particular Review Authority or Agencies that will review the issuer QOA22. However, in some embodiments, Issuers20may be required to clearly define what and when they commit to disclose in this section of the QOA22. It is expected that Issuers will undertake frequent disclosures and in some cases will disclose information on a weekly, daily or even real time basis.

8 Defining the Amendment Rules

In defining the CPU logic, the Issuer20also defines rules for amending the QOA22after CPUs24are issued based on the QOA22. The amendments to the QOA22can be restricted to amendments by the issuer20, amendments by the investors, or both. In addition, the issuer20could define the amendment rules to prohibit any post-issuance amendments to the QOA22. If either the Issuer20or the investors28are allowed to change one or more of the terms of the QOA22and/or rights of Investors28the rules for such changes are specified in the amendment rules. Such rules can include such provisions as: percentage of unit holders that must ratify any such change, procedures for voting on a proposed change, percentage of holders that are allowed to initiate a request for a change process (e.g., as described in more detail below).

9 QOA Validation and Approval

Referring back toFIG. 4, subsequent to the issuer authoring the QOA (72) and prior to the economic participation market26accepting newly issued segregated contract participation units24based on the QOA22(76), the economic participation market26manages a process for validating the QOA22(74). More particularly, before an Issuer20can officially register a QOA22in the economic participation market26, the QOA must be validated by a review authority associated with the economic participation market26. The review authority can be regulated or unregulated. The review authority reviews the QOA22and confirms that the QOA22is correctly structured and written before the QOA is officially registered and disseminated n the economic participation market26.

FIG. 6shows and exemplary a process110for validation and approval of the QOA22. The economic participation market26receives a draft QOA22from the issuer20(112) and the review authority reviews the draft QOA (114). The review authority determines whether the QOA22meets standards outlined by the economic participation market26(116). For example, the review authority can determine if the format of the QOA22is correct and whether the QOA22adequately describes the rights and responsibilities of all parties to the contracts. If the review authority determines that the QOA22does not conform to the standards, the review authority returns the QOA22to the issuer20for revision (117). On the other hand, if the review authority determines that the QOA22does conform to the standards, the economic participation market26allows the QOA22to proceed to the registration process (118).

10 Registration of the QOA

Referring back toFIG. 4, subsequent to the issuer20authoring the QOA (72) and validating the QOA (74), the economic participation market26registers the QOA22on the economic participation market26(76).

FIG. 7shows a process120for registering a QOA22. Upon receipt of a QOA document (122), a register QOA workflow process within the economic participation market26determines whether the QOA22has been validated by the review authority (124). If the QOA22has not been validated, the economic participation market26does not register the QOA and communicates any errors back to the issuer20. On the other hand, if the economic participation market26confirms that the QOA22is marked as having been validated by the Review Authority, the Register QOA workflow changes the QOA's status to “registered” (128) and communicates the status change to the Issuer20(130). Once a QOA22has a status of registered, the CPUs24defined therein are in a status of “registered—awaiting issuance”. Once the QOAs22and the segregated contract participation unit agreements have a registered status, the economic participation market26allows issuance of new CPUs24by the issuer20based on the QOA22(132).

11 Approval, Registration, and Validation of Segregated Contract Participation Units Based on a QOA

For each type of segregated contract participation unit that the issuer20desires to issue based on a qualified operating agreement, the issuer20generates and validates a segregated contract participation unit agreement for the segregated contract participation units to be issued. More particularly, before an Issuer20can officially register CPUs in the economic participation market26, in addition to the QOA, a segregated contract participation unit agreement is also validated by a review authority. The approval and review of a CPU agreement can be either part of or separate from the approval and review of the QOA because multiple different CPUs can be generated based on a single QOA.

FIG. 8shows and exemplary a process134for validation and approval of the segregated contract participation unit agreement. An issuer20authors the segregated contract participation unit agreement based on a QOA22(135) and prior to the economic participation market26accepting newly issued segregated contract participation units24based on the segregated contract participation unit agreement (137), the economic participation market26manages a process for validating the segregated contract participation unit agreement (136). More particularly, before an Issuer20can officially register the segregated contract participation unit agreement and issue segregated contract participation units based on the segregated contract participation unit agreement and associated QOA, the segregated contract participation unit agreement is validated by the review authority. The review authority reviews the segregated contract participation unit agreement and confirms that the segregated contract participation unit agreement is correctly structured and written before it is officially registered and disseminated.

For example, the economic participation market26receives a draft segregated contract participation unit agreement from the issuer20and the review authority reviews the draft segregated contract participation unit agreement. The review authority determines whether the segregated contract participation unit agreement meets standards outlined by the economic participation market26. For example, the review authority can determine if the format of the segregated contract participation unit agreement is correct and whether the segregated contract participation unit agreement adequately describes the rights and responsibilities of all parties to the contracts. If the review authority determines that the segregated contract participation unit agreement does not conform to the standards, the review authority returns the segregated contract participation unit agreement to the issuer20for revision. On the other hand, if the review authority determines that the segregated contract participation unit agreement does conform to the standards, the economic participation market26allows the segregated contract participation unit agreement to proceed to a registration process after which the issuer20can issue segregated contract participation units based on the segregated contract participation unit agreement and associated QOA.

FIG. 9shows a process138for registering a CPU agreement. Upon receipt of a CPU agreement document (139), the participation market26determines whether the CPU agreement document has been validated by the review authority (140). If the CPU agreement document has not been validated, the economic participation market26does not register the CPU agreement document and communicates any errors back to the issuer20(141). On the other hand, if the economic participation market26confirms that the CPU agreement document is marked as having been validated by the Review Authority, the status of the CPU agreement is changed to “registered” (142) and the economic participation market26communicates the status change to the Issuer20(143). Once a CPU agreement document has a status of registered, the economic participation market26allows issuance of new CPUs24by the issuer20based on the QOA22and the CPU agreement (144).

12 Issuance and Sale of Segregated Contract Participation Units

Various individuals or entities associated with the economic participation market26can be involved in the issuance and sale of segregated contract participation units24. After the economic participation market26registers a new QOA22, the issuer20files a new issuance of CPUs24in the economic participation market26. The economic participation market26can include electronic filing mechanisms to facilitate filing the issuance of the CPUs24by the issuer20. The information provided in the filing includes a reference to the relevant QOA22and to the specific CPU Definition therein, a specification of any CPU Distributor(s) being used and a description of the means by which the CPUs will be sold. The electronic filing mechanism provided by the economic participation market26validates the filing by verifying that the QOA22and the CPU agreement being referenced have previously been registered in the network. The details of the filing will be made available on the economic participation market26to users with the appropriate permissions. As described in more detail below, the issuer20can use the economic participation market26to offer the issued segregated contract participation units24directly to individuals and entities on a primary sale or to Distributors who will sell them to qualified buyers.

13 Purchase of CPUs by Investor in Segregated Contract Participation Unit in a Primary Sale

FIG. 10Ashows a block diagram of the sale of CPUs24to an investor28. In the primary sale, the issuer20sells segregated contract participation units24directly to the investor28. The sale of the segregated contract participation units24to the investor28forms a contractual relationship between the investor28and the issuer20.

For a direct sale, the issuer20may pay a commission to a representative. In addition, the issuer20may engage an approved CPU Transfer Agent to manage the creation of electronic certificates of ownership and transferal to investor in segregated contract participation units, and to communicate this information back to the issuers20. The transfer agent can continue to function in this role for the life of the CPUs24or until replaced by another transfer agent. The transfer agent's primary responsibility is to manage the official registry of investors who own the CPUs. The transfer agent receives notification of all trades and manage the registry of ownership for the issuer20.

In the direct market, electronic payment and escrow services can facilitate the physical transfer of money.

For sales of CPUs24on the direct market, an issuer20can offer a set of CPUs24to either an open universe of investors or to a private group that the issuer20specifies in the QOA22. In order to manage the issuance process, the economic participation market26can include a distribution service that accepts and manages bids for CPUs24submitted by potential investor in segregated contract participation units. The issuer20will be able to continually monitor this “order book” data which will eventually result in actual primary sales. More sophisticated auction mechanisms can also be used.

14 Indirect Sale of CPUs to Investors

In addition to selling segregated contract participation units24directly to investors28on the primary market, the issuer20can also sell an interest in a segregated contract participation unit24to an investor28through third parties (referred to herein as dealers or distributors).FIG. 10Bshows a block diagram of an indirect sale of CPUs24to an investor28. The issuer20sells one or more segregated contract participation units to a distributor150. The distributor150subsequently re-sells the segregated contract participation units24to an investor in the segregated contract participation units28. As such, the investor28obtains the contact participation unit24from the third party (e.g., the distributor150) rather than obtaining the segregated contract participation unit24directly from the issuer20.

In some embodiments, a Distributor can work with the Issuer20to determine the initial price of the CPUs24it agrees to purchase, and then sells them to the investor28. The price at which lots of the same set of CPUs are offered in an issuance can vary over time.

Investors28can use the distribution service tools on the economic participation market26, to purchase CPUs24. In some embodiments, electronic payment and escrow services along with Distributors will facilitate the physical transfer of money.

Both the issuer20and the distributors150can offer a set of CPUs24to either an open universe of investors or to a private group that is specified in the QOA22.

The Issuer20and/or the distributor150can use a basic distribution service offered on the economic participation market26that accepts and manages bids submitted by potential investors. The issuer20and/or the agent150will be able to continually monitor this “order book” data which will eventually result in actual sales. More sophisticated auction mechanisms will also be offered as distribution services, and can be used by Distributors for sales involving third parties. When one or more Distributors are used, they will come to an agreement with the issuer20regarding the manner in which they sell the CPUs24, including the degree to which they employ distribution services offered on the economic participation market versus using their own tools and processes.

15 Secondary Market Trading

Once an investor28has purchased a segregated contract participation unit24(either directly or indirectly), if desired, the investor28can re-sell the segregated contract participation unit24on a secondary market. Secondary Market Trading refers to the process by which the investors28and CPU Dealers buy and sell CPUs24that have already been issued. The value of the contact participation unit24on the secondary market is likely to fluctuate based on the performance of the underlying activiti(es) in which the segregated contract participation unit24offers participation. For example, if a segregated contract participation unit offers participation in a new model of car sold in North America by offering a portion of the proceeds from sales of the car and the initial sales of the car are greater than projected, then the value of the contract participation24is likely to increase. In contrast, if the initial sales are below expectation, the value of the segregated contract participation unit24is likely to decrease. In matching buy and sell orders for CPUs in the EPM only buy orders from qualified buyers (as per the QOA) are considered. The system can utilize different matching and auctioning techniques. Because of the contractual nature of the units traded, buying units implies undertaking contractual obligations towards the issuer (e.g. obligation not to disclose confidential issuer's information provided to unit holders as part of a restricted disclosure procedure.

16 Distribution of Proceeds

The distribution of proceeds refers to the process by which Issuers20distribute income, interest, dividends or any other proceeds to investors28holding CPUs24it has issued.

The Issuer20can distribute proceeds or it can employ a CPU Payment Agent to do so on its behalf. If a payment agent is used, the issuer20pays the Agent a fee. The actual distribution can occur over the economic participation market26via Payment and escrow services, or it can take place outside of the economic participation market26. Regardless of how the payment is executed, the economic participation market26is notified of the transfer of moneys and maintains a record of the transfer.

17 Amendment of Qualified Operating Agreements

In some situations, the issuer20, the investor28, or both may desire to make a change or amendment to the qualified operating agreement22after the segregated contract participation units24have been issued based on an amendment procedure described in the qualified operating agreement22. In general, when agreement is reached with regard to amendments (as described below), both general content as well as specific CPU definition sections of a QOA22can be amended. Such amendments can be either issuer-initiated or CPU holder-initiated.

Issuer-initiated amendments are amendments that the Issuer20wishes to make. For example, subject to rights provided to it in the QOA, the issuer20may desire to modify the disclosure requirements, redeem all or part of the entire issue, change the currency used in calculations or even change the economics of the CPUs within a predefined range Depending on the type of amendment and the amendment rules specified in the QOA22, the issuer20may need to get a certain percentage of votes from Investors to allow it to legally make the amendment to the QOA22. The exceptions to the vote requirement include amendment rights and amendment types that the issuer20clearly specified in the QOA22as not requiring a vote. For amendments requiring a vote of the investors28, the issuer20must specify in the QOA22the percentage of votes that it will need to execute the change. Often such rules will be written to apply to a wide class of amendments. For example, an issuer20can write that for any amendment that would change the calculation methods used to calculate distribution of proceeds to Investors, it must get support from 80% of Investors. The economic participation market26can provide services that enable voting to be managed electronically.

FIG. 11shows a process160for managing issuer-initiated amendments to a QOA22. The economic participation market26receives an amendment request from the issuer20(162). Based on the type of amendment in the amendment request, the economic participation market26determines whether the amendment is of a type that requires a vote of the investors in order to implement the amendment (164). If the amendment is not of a type that requires a vote of the investors, the economic participation market26makes the amendment (165). On the other hand, if the amendment is of a type that requires a vote of the investors28, the economic participation market26determines what percentage of votes is necessary to make the amendment (166). The percentage of votes necessary is specified in the qualified operating agreement22. The economic participation market26requests and receives votes from investors28regarding the proposed amendment (168) and determines whether the number of votes in favor of the amendment is greater than the percentage required to implement the amendment (170). If the percentage is greater than or equal to the required percentage, the economic participation market makes the amendment (172). On the other hand, if the percentage is less than the required percentage, then the economic participation market26does not make the amendment and notifies both Issuer and Investors about the voting results.

CPU holder-initiated amendments are amendments that originate with the Investors28of a set of CPUs. For example, an investor28may desire to exercise rights granted to the investors, elect an option to change performance calculations, replace the auditors (if allowed) etc Since amendments made and ratified by the investors28generate a legally binding obligation for the issuer20, the issuer20may limit the type of amendments that can be made by the investor28. For example, the issuer20buyer might not allow amendments to the calculation of proceeds by the investor in segregated contract participation units unless it was specifically allowed at the QOA or the CPU agreement. In addition to limitations on the type of amendments that can be made by the investors28, in the Amendment Rules section of the QOA, the Issuer20specifies both a minimum percentage of holders needed for an amendment request to be put to a vote and the required percentage of positive votes for such an amendment request to actually become a legally binding obligation for both the issuer20and the investors28. The issuer20can specify these for as many and as general or specific amendment types that it desires to allow.

FIG. 12shows a process180for managing such issuer-initiated amendments. The economic participation market26receives an amendment request from one of the investors28(182). The economic participation market26determines whether the amendment is of a type that is allowed to be made by the investors28and whether the minimum percentage of investors for the amendment request have been satisfied (184). Both the type of amendments that can be initiated by an investor in the CPU and the minimum percentage of holders needed for an amendment request to be put to a vote are specified in the QOA22for the CPU24. For example, prior to requesting an amendment, the investor in the CPUs who desires to initiate the amendment can solicit signatures from other investors. The proposed amendment will be presented generally for a vote only if a large enough proportion of the investors support proposing the amendment. If the amendment is not of a type that is allowed to be made by the investors28or if the minimum percentage of holders needed for an amendment request to be put to a vote is not obtained, the economic participation market26rejects the amendment (186). On the other hand, if the amendment is of a type that is allowed to be made by the investors28and minimum percentage of holders needed for an amendment request to be put to a vote is obtained prior to submission of the request, the economic participation market26requests and receives votes from the investors who currently hold the segregated contract participation units (188) and determines whether the number (e.g., the percentage) of votes were received in support of the amendment was big enough to support the amendment (190). If enough votes supporting the amendment were not received, the economic participation market26rejects the amendment (194). If enough votes were received in support of the amendment, the economic participation market26implements the amendment (196) and the amendment becomes a legally binding obligation for the issuer20and investor28.

18 Withdraw Qualified Operating Agreement

In some situations, issuers20can withdraw a QOA22after it has been registered and CPUs24have already been issued. For example, an issuer20could desire to withdraw a QOA22if its financial situation changed, it was not able to sell enough CPUs, other more attractive financing options are available, etc. However, prior to withdrawing the QOA22, the Issuer20buys back all CPUs24connected to the QOA22that are still being traded in the economic participation market26. It is possible to include in the QOA22a PUT price in which the issuer is allowed to buy part or all of the outstanding units.

Such redemptions can require a positive vote from a certain minimum percentage of Investors and a preset method and/or set of formulae for valuing the CPUs24. In order to protect investors in the segregated contract participation units, if the Issuer20does not specify both of these in the QOA22, the issuer20will not be allowed to force a buy back of CPUs24.

FIG. 13shows a process210for withdrawal of a QOA22. The economic participation market26receives a request to withdraw the QOA22from the issuer20(212) and determines whether the QOA22specifies a buyback and withdrawal procedure (214). If the QOA22does not provide such terms, then the economic participation market26denies the withdrawal of the QOA22(216). If the QOA22does provide a buyback procedure, the economic participation market26determines what percentage of votes is necessary to allow the withdrawal and what percentage of the investors must participate in the vote (218). The percentage of votes necessary and the percentage of investors required are specified in the qualified operating agreement22. The economic participation market26also requests and receives votes from segregated contract participation unit holders regarding the proposed withdrawal (220) and determines whether votes were received from a large enough portion of the investors28(222). If votes were not received from a large enough portion of the investors28, the economic participation market26rejects the withdrawal request (224). If votes were received from a large enough portion of the investors28, the economic participation market26determines if the number of votes in favor of the withdrawal is greater than the percentage required to allow the withdrawal (226). If the percentage is less than the required percentage, then the economic participation market26rejects the withdrawal and the CPUs24remain as legally binding agreements between the segregated contract participation unit holders and the issuer20(228). On the other hand, if the percentage is greater than or equal to the required percentage, the economic participation market26calculates the value of the CPUs24(230). The value is calculated according to a pre-defined formula included in the qualified operating agreement22. After calculating the value for the CPUs24, the issuer20repurchases the CPUs24from the investors28at the calculated value (232) and withdraws the QOA22from the economic participation market26(234).

Issuers20file disclosures based on the details they provide in the Disclosure Procedure and Timing section of the QOA22. The filing can be electronic; the economic participation market26can include a mechanism that accepts submittals of disclosure documents from registered Issuers20and broadcasts them to Investors28, all of whom are registered in the economic participation market26. The EPM will also have a mechanism that will send alerts to issuers20in the days/weeks leading up to scheduled disclosure dates, and will provide exception handling functionality for missed deadlines.

20 Participation Based on Non-Monetary Contribution

As mentioned above, in some embodiments, the investor28can purchase participation by a non-monetary contribution of goods or services.FIG. 14provides an example of an arrangement where participation is based on a non-monetary contribution. In such an arrangement, a producer of goods exchanges a component or service for participation in an activity of a manufacturer or company that will use the component or service (as shown in block240). The participation is issued in the form of a CPU24that outlines the responsibilities of the manufacturer or company. The manufacturer or company that issued the CPU24then incorporates the component into a product (as shown in block242) and the product is sold to consumers (as shown in block244). Based on the terms outlined in the CPU24, a portion of the proceeds from the sale of the product into which the component was incorporated is returned to the producer of the goods (as shown in block246).

It is believed that allowing a producer of a component to purchase participation in the product into which the component is to be incorporated can re-allocate the risk for the producer of the product. For example, if a component is expensive and the producer of the product is unsure whether a product incorporating the component will be successful, the producer of the product can offer participation to the producer of the component such that the producer of the component shares in the risk of whether the product incorporating the component will be successful. It is believed that such a decoupling of the chain of title from the risk can make higher risk projects and products more feasible.

For example, as shown inFIG. 15, a car manufacturer could be debating the decision of whether to include an in-dash global positioning system (GPS) in a car due to the cost of such a component. In order to share the risk of the decision with the producer of the GPS system, the GPS producer could exchange the in-dash GPS systems for a CPU issued by the car manufacturer (as shown in block250). For example, the CPU could provide a discounted purchase price plus a return based on a percentage of the profits for cars incorporating the component. The car manufacturer could then incorporate the GPS systems into the cars (as shown in block252) without having to pay the high up-front cost of the GPS systems. The cars that have the GPS system incorporated into them are then sold to consumers (as shown in block254) and a portion of the proceeds from the sale are returned to the GPS producer (as shown in block256) based on the terms in the CPU.

The system and methods used to implement the economic participation market described herein can be implemented in digital electronic circuitry, or in computer hardware, firmware, software, or in combinations thereof. For example, calculations of the value for a segregated contract participation unit, the formation of a qualified operating agreement, formation of segregated contract participation units, the settlement processes for segregated contract participation units, etc. can occur in systems511as shown inFIG. 16. Generation of qualified operating agreements and segregated contract participation units can be implemented using any technique. Also, data structures used to represent contents of the qualified operating agreements and segregated contract participation units can be stored in memory and in persistence storage. The segregated contract participation units can be represented by certificates or preferably as book entries in the records of an administrator or broker/dealer or clearing house or transfer agent or registrar either as manual entries or preferably as data structures in an administrator or a broker/dealer's computer systems.

An example of one such type of computer is shown inFIG. 16, which shows a block diagram of a programmable processing system (system)511suitable for implementing or performing the apparatus or methods described herein. The system511includes a processor520, a random access memory (RAM)521, a program memory522(for example, a writeable read-only memory (ROM) such as a flash ROM), a hard drive controller523, and an input/output (I/O) controller524coupled by a processor (CPU) bus525. The system511can be preprogrammed, in ROM, for example, or it can be programmed (and reprogrammed) by loading a program from another source (for example, from a floppy disk, a CD-ROM, or another computer).

The hard drive controller523is coupled to a hard disk130suitable for storing executable computer programs, including programs embodying the present invention, and data including storage. The I/O controller524is coupled by an I/O bus526to an I/O interface527. The I/O interface527receives and transmits data in analog or digital form over communication links such as a serial link, local area network, wireless link, and parallel link.