The Multi-BMBY Mechanism: Proportionality-Preserving and Strategyproof Ownership Restructuring in Private Companies

Gal Danino, Moran Koren and Omer Madmon

Papers from arXiv.org

Abstract: In privately held startups, restructuring ownership is challenging due to diverse and uncertain valuations among owners. Traditional approaches, including the BMBY mechanism for equal partnerships, fail to address the complexities of multi-owner settings and don't elicit true valuations. We propose a novel mechanism that extends the BMBY rationale to accommodate these complex scenarios. Our mechanism ensures truthful valuation elicitation while offering several advantages: it is easy to implement, budget balanced, resistant to collusion, individually rational, and allocates shares to those who value them most. Crucially, it preserves proportionality among remaining owners, maintaining existing power dynamics. The mechanism allows for adaptive control of the eventual number of owners, addressing unique startup needs such as incentivizing employee ownership. This paper contributes to the field of ownership restructuring by providing a practical, theoretically-grounded solution for the complex dynamics of startup recapitalization, potentially improving decision-making processes and stakeholder relationships in these pivotal business transitions.

Date: 2023-11, Revised 2024-10
New Economics Papers: this item is included in nep-mic
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