An economic interest is not a seat

Interest

Every arrangement I have seen confuses a right to be paid with a place at the table, and the confusion is expensive for exactly one of the two people in it.

An economic interest is a right to a share of what comes in. It is a payment right. When money arrives, some of it is yours, and that is the whole of what the interest says.

A seat is something else. A seat is a position from which decisions get made: what is built, for whom, in what order, on what terms. The person in the seat is consulted because the work passes through them.

The person with the interest is paid because the money passes through them. These are not the same thing, and a stated share does not convert one into the other.

Here is a small test. A client pays, and there is a question about which currency the payment should land in. Who gets asked?

The person doing the work and holding the client, because the answer changes what they do next. The person with the share does not get asked, and is not owed the asking, because nothing they do changes. They will be paid their part of whatever arrives, in whatever it arrives in.

If that feels wrong to you, if it feels like the share should come with the question, then you have been treating an interest as a seat, and the term for the thing you are actually holding is a payment right.

Seat

The reason this stays confused for so long is that the word used for the person with the interest is usually a big one. Founder. Partner.

Co-owner. And a big word left unbounded can mean whatever the room needs it to mean on the day.

This is the part I learned slowly. An identity that has never been written down is unbounded, and unbounded feels like a lot. A contract converts an unbounded identity into a bounded role, a list of what the role does and receives, and the bounded version is always smaller than the identity it replaces.

Always. That is not a flaw in the contract. It is what writing something down does.

Which is also why the person holding the big word is so often the one who never quite gets round to signing.

The rule of thumb, with no number in it: whoever cannot describe their seat in one sentence of things they actually do does not have one. They have a word, and the word is being paid.

Vote

Lay the two sides of an arrangement I was in on a table and look at what each of them actually controlled.

On my side: the content, the engine that made it, the properties it ran on, the migrations between them, the client relationship, and the completion of a deliverable that paid both of us and required nothing from the other side but waiting. On the partner’s side: a shell entity, a domain he would have needed me to populate, and an opinion.

That is not a criticism of the partner. It is a description of two seats, one of which was a seat and one of which was an interest wearing a big word. The opinion was real.

It was also the only thing on that side of the table that was not a payment right, and an opinion is not a vote unless the work passes through it.

So the question I still turn over, and I do not think it has a comfortable answer: when the person with the interest asks why they were not consulted, is the honest reply about the work, or about the word they were given and never made bounded?