The Virtual Corporation, possibly a milestone in the collaboration era

Forums, chatrooms, blogs, wiki's in 2-D or in 3-D can all be collaborative tools. They help people to interact and to produce stuff for business, art, research, software development or just for socializing and entertainment. But at a certain point, successful collaboration needs governance rules and a structure to pool the resources and revenues. Legal scholars try to work out such structures which are suitable for the collaboration era. One of the most exciting examples is Do Tank, which develops a framework for the virtual corporation. Their ideas have been applied in a Bill which has been approved in the State of Vermont. Kudos to James Wagner Au, it was reading his blogposts on GigaOm and New World Notes that I learned about this development.
The Virtual Corporation Project is an effort of the Institute for Information Law & Policy at New York Law School where Professor David Johnson takes the lead for this project.

Wat is the Virtual Corporation Project all about? The Do Tank site explains: (click 'read more' below)

The Virtual Company Project aims to create the legal, technical and business infrastructure necessary to enable formation and operation of companies, entirely online, and to facilitate the creation of companies (and valuable work product or services) by groups of individuals who want to share time and attention (in a collective effort) rather than investing capital.

Mind you, this is not only about legal texts trying to define rules. It is also a technological project:

The goal of the Virtual Company Project is to build online tools to help groups create and implement governance rules necessary for successful collaboration. The project is premised on the belief that the right graphical interfaces can translate the structures of the group into clear and intelligible procedures that will enable teams to make decisions, control assets and enter into contractual relationships with third parties.

Visualization is an important part of creative procedures. One of the strong features of virtual environments is for instance the possibility to create 3-D mindmaps and wikis, enabling more easily to see relationships which else remain hidden.

In this project (not necessarily in 3-D)group participants are enabled to see themselves in relationship "to the group as a whole, allocate roles, establish accountability to the group, make collective decisions, and administer group assets, expenditures and distributions."

In the era of collaboration and user generated content (cfr. wikipedia, e-bay, open source) the existing corporate structures are not always very useful. People have maybe not that much financial means to contribute, but they can have time, a computer and a good internet connection, expertise and creativity. They are maybe not willing to engage themselves for a long period of time and exclusively for a particular project, but maybe part of their time and on a transient basis. Maybe the people working together do not all live in the same city or even country, but are they dispersed over the planet. Maybe those persons do abhor top-down management styles and they could very well be more in favor of group decision dynamics. In other words, maybe we speak here about that difficult but very interesting Generation Virtual, who tends to believe that work also has to be fun.

The Virtual Corporation Project tries to create an incorporation structure that allows those collaborative groups

to create a persistent legal entity that has the ability to own property, open a bank account and enter into contracts with third parties (think a specialized wikipedia for profit, or a consulting service staffed by a transient group but able to contract with customers and collect fees).

State limited liability company acts can be "modestly amended" to provide the flexibility necessary for "transient online groups (groups of individuals who come and go and provide only the level of effort they prefer) to enjoy limited liability, group-based decision-making and, collectively, legal personhood."

The Belgian legal scholar Pierre-François Docquir of the Perelman Centre of the Université Libre de Bruxelles spelled out on his blog OpinionDissidente(French language) how the Virtual Corporation Project responds to the collaboration era:

• The virtual corporation: the whole life of this corporation is enabled electronically. Social software and a graphical interface makes it possible to collaborate even though the partners are dispersed in time and space. This corporation depends not that much on the shareholder-investor, but on the intellectual capital and the expertise of the partners. A project can be realized at less cost by using complex collaborations. The model could also be used for the non-profit sector.
• The work organization: this would be inspired heavily by the open source communities. The decisions would be taken by the partners, not automatically by a god-like management. The participants can contribute freely without being constrained by hierarchical instructions. Decisions would be taken by collective mechanisms, the respect earned by the work done would be a very important motivation.
• Hosting company: in the thinking of Professor Johnson the infrastructure of the virtual corporation (the software, the graphical interface) could be provided by a hosting company. Such company would make possible the interaction between partners, the authentification of decisions and the archiving of decisions, and could also provide social and tax services. Individuals could consult the databases of those hosting companies to select projects/companies where they would like to contribute, and so the hosting company could become a kind of eBay auction house for businesses.

This project is no longer wishful thinking. The State of Vermont passed a Bill which, so explains the website of the Project, is designed to make it easier to form and operate a company online as an LLC, under Vermont law -- by allowing entirely electronic filing, eliminating requirements for face to face meetings and allowing some of the rules applicable to the group to be embodied in software. The bill was introduced by Alison Clarkson and Professor Johnson testified in favor of the Bill, please read his very interesting text.

Of course, the project is still young. The State of Vermont still has to adapt some systems before the possibilities created by the Bill can become realities, but Professor Johnson says the project has a lot of political support. The interfaces helping to manage and govern the virtual corporations and the software for the hosting companies have to be developed. Professor Johnson himself explains what can go wrong and what can go right in a text on Do Tank.

The Belgian scholar Docquir summarizes a number of issues which have to be solved. What will the responsability of the hosting company be if the virtual corporations commits illegal acts? What about tax, identities of the partners, what about the financial regulations (banking, laws against money laundering etc), what are the limits of open source collaboration styles? What about the external partners of the virtual corporation - can they trust a structure where the assets can very well be primarily of an intellectual nature? What if one of the partners dies?

My conclusion: Even though there remain questions, this is a major development in the collaboration thinking which is not only important for the State of Vermont and the US but for the whole world. As a European I must admit I don't have a clear view on the importance of the States in the US. But knowing what Delaware did for corporations, and Vermont previously for captive insurance structures and now for virtual corporations, it seems they are a source for a lot of creativity.

Roland Legrand