Historically, a company was a legal entity that had a mixture of individuals (natural or not) that united to achieve certain pre-decided goals. Today, there are many types of companies, but for the purpose of this discussion, we’re going to focus on private and public companies.
From a legal perspective, a company is created and treated at law as a legal person so that it’s individual shareholders have limited liability. This means that if the company (as a legal person) gets sued, then it’s shareholders are only liable to the amount they have invested. Like any legal person, when a company closes, it may need a “death certificate” to avoid tending to any further legal obligations. A private company however, is unaffected by the death of it’s original shareholders.
Companies of course keep a log of financial transactions performed — whether that be inflow or outflow. Apart from general sanity, auditing this log of transactions is important from a tax perspective, as governments tax companies based on their profits. Until the dawn of seamless internet payments, this entire process of setting up a company, auditing, taking payments, settling invoices and paying tax was all manual.
At Avalon Labs (Enkidu’s parent company), we like identifying problems we think we can solve and team up with influential entities from across the world to see if we can tackle these issues together. We live, breathe, eat and sleep joint ventures. Every single time we created a new venture, we were paying legal and accounting fees — which can vary depending on the jurisdiction we registered the company in.
But we noticed one very strange thing in the way we ran companies. Our payment gateway handled almost 100% of the product payments we were taking in. We were still doing SWIFT bank transfers for payments on the services side of the business, but auditing them was relatively painful compared with the ease of the payment gateway dashboard. Every spend we had made happened on the company card and our usage of outgoing bank transfers were minimal at most. We were building ventures with both small and large companies alike — and going paperless while at it!
“I’ve got an idea” Varun said.
“Let’s float a new type of company entity — something simple and light”
“You know you’d need a jurisdiction to back you right? LLCs and Private Limited Companies work on the backs of their governments” quipped Shashank.
“I know, but what if it wasn’t an actual company? What if it was simply an automaton parked on a payment gateway that simply obeys some programmatic rules?
“Something that might not help larger companies, but would be easy to setup and use for a bunch of peeps across the world who want to say, build a 2D side scrolling game and want to make some money off it?”
“What about the tax implications” said Shashank.
“Flow through tax. Somewhat like an LLC, which is a pass through entity. The members themselves are taxed as income tax, because the ‘company’ itself would be an automaton” answered Varun.
“Dude. Smart Contracts. This is a job for Smart Contracts.” replied Shashank, excitedly
Now truth be told, Shashank is a stickler for the blockchain - more so the Ethereum blockchain. He’s been talking about Smart Contracts for years and his eyes lit up at the possibilities of where this conversation was going.
We spent the next 6 months talking to Themis Associates, expert corporate lawyers in India and Collyer Law, their Singapore counterparts. We were trying to build an automaton (or ghost) entity that could bind people together programmatically. In the real world, lawyers settle disputes (their actual role is dispute deterrence). If we needed to settle disputes, we’d end up in hot water as we didn’t want to build our own legal system and lobby for it.
We needed something trustless. Something binding that had no open ended interpretation of rules. Not a one size fits all solution, but something that would power small collaborations. It seemed like overkill that two kids from Spain and Japan needed a company entity to sell a small game. Paypal was cool, but got messy when there was more than one person involved. “What if the other guy runs away with my money?” was the running theme.
Finally, we knew what we were going to build. We were going to design a platform that would:
- Help people find other people to collaborate with — game designers, coffee brewers, engineers, art directors, etc (with our last marketplace startup Jobspire, we served 4 million requests in 2016 — we love building marketplaces!)
- Help collaborators via a pass through automaton that would be called an “Enkidu”. Each individual in the team would be taxed as they would personal income, in their own respective jurisdictions.
- A simple set of rules or “Resolutions” to handle disputes, but more importantly, prevent them.
- A vesting system akin to how vesting would work in the real world (so people don’t leave without completing their commitment period).
- All of this parked on a payment gateway, with a configurable percentage set for treasury reserve.
In all, this would allow small teams that had a low cost of production (think game design, SaaS tools, small ticket eCommerce stores and more) get to work quickly. As long as the Enkidu payment gateway was live on the website where sales were happening, the split of payments would happen according to a “cap table”, a table that represented the share held by each collaborator on the team.
Cap tables, payment gateways and dispute resolution should always have been part of one system. It should’ve been easy for governments to transparently tax every company (effectively lowering the tax rate for everyone). Outgoing payments could happen via the treasury (an automated debit card for the treasury holding, perhaps?)
Enkidu is here to make starting up for certain types of businesses easy. We think we can merge two concepts — the company entity and the payment gateway for small businesses (~50% of the world’s GDP). There are of course more possibilities for such a system - sales and affiliate commissions being one of them.
We see real value from Enkidu because it solves one of own longstanding problems. Join investors and advisors like David Drake of LDJ Capital and Jay Smith of Factom in being a part of this revolution. Join our whitelist now — presale starts March 5.
The Enkidu Team