Untaxing Part IV: *Katchings’ Two Laws of Capitalism Enlighten** Ownership Structure*

part III [previous] [next] part V

*A scientific formula enables a more effective management of public companies and clearer definitions for effective tax policy.*

*The election of a corporate structure that maximizes shareholder value is intractably tied to the country’s tax policy.*

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Now we examine Katchings’ Two Laws of Capitalism (2011).

Katchings’ Two Laws (or Theorems) of Capitalism (which include the unpublished 22 Variables of the Public Company) form the structure and the basis for modern thinking on the ownership structure of the public company as a standard social good where all consumers, as producers of equity value for public companies, are automatically included in the ownership of the public company.

This white paper states in Part I that we need a hard scientific formula in the spirit of physics (e.g. Newton’s Force=ma and Einstein’s Energy=mc2)so that the students of capitalism can define a clear tax policy and executives can manage their public companies more effectively.

Knowing the exact Force and Energy parameters of the public company vehicle, executives can gauge the optimum management and operation of their companies (that they are stewards of) for the first time.

The Katchings’ Two Laws of Capitalism provide, for the first time in Capitalistism History, this formula (codified with 22 variables that consist of 4 exact sections) for the blueprint on how to set up and run the modern public company in the face of any tax policy.

The Katchings’ Two Laws of Capitalism come from an exhaustive study of the public company by the capitalistic formula:

**X=(A*B/Y)/C**

where

X is Stock Price (or Equity produced per share),

A is Revenue,

B is Earnings Rate (expressed as a percentage of revenue),

Y is Shares Outstanding, and

C is Dividend Yield Rate or Rate of Return.

When A is $1 for Revenue, B is 1.00 for a 100% Earnings Rate, Y is 1 for 1 Share Outstanding, and C is 0.01 for a 1% Dividend Yield Rate, then the Stock Price X (or Equity produced per share) is $100. The calculation is ($1 * 1.00 ÷ 1) ÷ 0.01 = $100.

In this basic example, the return on taking a $1 Risk that produces $100 of Equity is 9,900%. †

The X=(A*B/Y)/C capitalistic formula represents a reality that causes entrepreneurs to elect the public company structure over the private company. Entrepreneurs share risk and equity with investors. Equity is produced from sharing the Risk of starting an enterprise with anyone from the public.

These two pillars of capitalism drive the vehicle of capitalism (the public company). Equity is in the equation of a clear formula for the standard of capitalism in the public company and Risk influences its ultimate market value and equity.

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† Return on Investment (ROI) is the ratio of Return to Investment. In this fundamental case, Investment = Risk = $1 and Return = Equity – Risk = $100 – $1 = $99. The ratio of $99 to $1 is multiplied by 100 to express ROI as a percentage.