Note: Descriptions are shown in the official language in which they were submitted.
CA 02465387 2004-04-28
United States Patent Applies~tion
for
A LIMITED LIABILITY BAlYI~fhIC STRUCT~C,IYtE INVOLVING
MEMBER BA1~IKING~ A1VD MET~TOI'3 OF USE
TO THE COMMISSIONER OF PATENTS AND TRAL1EM.~RI~S:
Your petitioner, DO'C~~GLAS M. D~U'RBA_~'O, citizen of the United States,
whose post
office address is 476 W. Heritage Park Blwd., Suite 200, Laytan, I,rtah 84041,
pr~.ys that letters
patent rr~ay be granted tc~ hi.m as the in~rentor of A LIMITED LIABXLyTY
BANKING
STRI,1CT~U~RE INVOLVTNG MEMBER BANKI:1~G AND METHOD OF IJSE as set forth. in
the following specification.
CA 02465387 2004-04-28
rnr~cv-r RrrL~cArrotJ
uc.~crcE~rNO. n~ss.ooo~
EXPRESS NtAII_ f"nDGL Nta. F.V 353 42A 907 US
P~.tIOR.ITY 1'N'~'OR~ATiON
(OOU1] 'i"17i9 appllCation iS basad on, and claims priority to, tlZe
provisional application f led
NoverzZber 1, ?OU2 entitled A Mctlaod ofMember Banking, serial number
6U14?3,1$1, a.s applied
!'or by Douglas M. Durbano.
FrI~;LD Oh THE ~~1~VENTTON
X4002] The present invention relates generally to a method of baailcing.
Specifically, the present
invention provides for a limited liability banking str~lcture within, wluch a
bash may operate and
be taxed, and wherein hu.sinesses or individuals may become members of the
banking
organizdtaon and may participate in proh.t shaa~ng and outer membership
benerra,
BACRGR,O~(J1~ID t?F T:~TE INVEI~'TrON
[0003] There are two general types of ba~~Icing institutions comrnonly
recognized today.
co»>merciai banks and federal savings banks. Among the more widely ufiilized
co~nmereial
banks, the two basic bank. types axe state chartered banks, which are
regulated primarily by the
Federal Doposit ~nsuxance Corporation ("rDIC"), and nationally chartered
banks, primarily
xegulated by the Office of the Comptroller of the Currency ("OCC"). StatE
chartered bays may
elect to become memb~;rs of the Federal Resente, thezeby becornuig member
banlcs-a
designation to be distinguished from the texln "Member Banking" as defined
uniquely below.
608d31 v1 Pagr: 2 of 25
CA 02465387 2004-04-28
PATENT AP1'1.)C:ATIaN
DUC:Kl:'t' No. 13355.QUU2
L~1~RHSS MnlL l.a,REL N0. ~V 333 424 90't ~fS
j0004] Commereis.l banlcs engage in a broad craw-section of activity
including, but not limited
tn, L~ushlcas, real estate, and consumer lcndirlg. By comparison, federal
savings baal~kks, as
chartered and regulated by the federal governn»~t, are less co»amon, which is
due in part to the
significant reduetic~n in the existence of Savings and Loan ("SfL'L") banks
afver their demise
during fine 19$U's. Federal savings banks engage primarily iz~ single-family
residmiial and
commercial real estatt; lending.
j0005J In tenn.s of corporate stzucture, most commercial and fedt;raI savings
banlcs are sttvetured
as C-Corporations ("C-Corp") .for the purpose of raising money on the public
market; however,
some banl.s are also orgatxized as S-Corporations ("S-Corp"), which cannot
maintain more than
IO seventy-:Cme shareholders ai ~.~y given time. Both of these types of
entities are integrally liuced
to their respective methods of banlitlg. Although generally effective iv
attracting market capital,
both types of entities are often unresponsive to individual depasi.tors' needs
aa~d/or desires, and
are subject to undesirable tax treatment. More specifically, corporations are
subject to dual
taxation, first as an entity, and second as individual taxpayers. 'rJnder
typical C-Corp or S-Corp
15 status, banks share their profits with shareholders according to a
particular shareholdex's
percantage ownership, or number of shares. Management of these entities is
typically controlled
primarily by a board of directors as elected by the shareholders.
j40U6j Over the last rWeen years, the number of commercial banlcs in the
''t~rlited States has
dropped .due primarily to bank mergers. In 1990, there were 12,347 banks
compared to 8,315 in
20 2000. The total continued to decline to 7,$87 at year-end 2002. .As the
consolidation ofthe
nations banks was undt~rway, the number of banlc branches in the ~Jnited
States increased from
Papa 3 of 25
CA 02465387 2004-04-28
PATFNT APlyLIt:aTION
DOCKG r N0. 13355.n1~o3
l;7tY1'vBSS MAIL 1.AF~ELiJO. EV 333 424 9D'7 U
SU,406 in 199f), to 64,079 in 2000, and 66,185 branches during the period of
economic recession
between 2000 and ?002. Dining that period between 2000 acid 2002, the number
of bank off ces
also increased from ?2,394 to 74,07?.
[OQ07j Dying this period of bank mergers and economic ups and downs, total
bank assets, bank
loans and leases, and deposits showed impressive growih. Total bank assets
were $3,3b9 billion,
X6,244 billion, and $7,07'7 billion at then end of years 1990, 20x0, and 2002,
respectively. 'let
bank loans and leases increased from X2,110 billion, to X3,755 billion, to
$4,082 billion over the
same year-ends. Total bank. deposits i.n the United States were $2,650 billion
at the end of 1990,
X4,180 billion al the end of 2000, and X4,690 billion at the end of 2002.
lU [000$] Total interest income hits shown lhrctuations and modest growth
since 1x90. Total
interest income for banks in the United Status was $320 billion, $428 billion,
amd $358 billion in
1990, 2000, and ?002, respectively. For the same pcniods, non-interesi incame
increased more
than 300% froze $55 billion, to $153 billion, to $1'72 billion. Additionally,
net income
experienced more than a five-fold increase, jumping from $16 billion in 199Q,
to $71 billion in
2000, to a record $90 billion in ?003.
[0009 In contrast, other baokia~g methods, typically utilized by banking
caopera.tives and credit
unions for example, often organize as not-for-profit entities in order to
receive certain
preferei~.tial tax treatment and to offer banking incentives to their
depositors rather than a sham of
profits. For many cooperatives and credit unions, because profit sharing is
eat an option
Z0 available to their depositors, incentives are often offered to depositors
in the form of rc;duced
interest ratt;s or other servicos anchor discounts. 7n ten~as of management,
these entities are often
6°K431v1 Page 4 of 25
CA 02465387 2004-04-28
Fn t'I:N'1' APPL(CnTIU'N
npCKETNO. ~3355.000~
h~CPli.L;SS M,41L LA13~L NC'7. FV 333 424'JU7 t1S
controlled by an elected board of directors, or by a. collective body of
customer/owtiers.
Customer/owners are often called "Menihers."
[001 U[ Credit unions arc closely regulated by, and operate under the
direction of, the National.
Credit Union Share Tnsuranee Fund, ss adm.instered by the Ivrational Credit
~L.Jnion
Administratie~n. This agency of the federal gavernment insures deposits of
er~dit union
members. Althougla credit unions offer membership henefts, they often struggle
vrith raising
capital because there are no prom sharing options for members and,
consequently, little incentive
for members to contribute capital to the financial institution. Dc~spit~ these
disadvantages, credit
unions have spawn significant growth in the last twenty years. Reasons for
their expansion are
1 U many.
[0011 [ First, credit unions are non-profit non-taxed entities. Elimination of
tax obligations
shows credit uzuons to charge Le55 for their services, to lowr~r rates on
tl7.eir loans, and to increase
rates on their savings and deposit instruments. Second, credit union customers
are ''members"
~u~d have "ownerslup" in their "banking" institution through their savings
deposits. This
ownership leads to an establishment of loyalty on the part of their me~x~bers,
a, loyalty unmatched
by the bank-customer relationship. Third, eradit unions are perceived by their
members as "local
businesses". In today's world of diminishing personal contact between
'businesses and their
customers, this perception providc;s a genuipe adWantage to the cxedit union
method of banking
since most have a limited geographical distribution_
2U (0012 Despite a general c~cpantling trend over the last twenty years, the
numher of credit anion
in the United States has also decreased dcle primarily 1o mergers- W 1990,
tl2ere were 14,459
''°~';'~°' Page S of 25
CA 02465387 2004-04-28
PA'CIN'1' ØNPI,iC:ATiON
DOCKET NO. 13355.fK1~'d
H~7CPRESS MAIL. L,P,HNI. NQ, EV 333 424 ~~U7 t15
credit unions compared to 109(84 in 2000. 'fhe total continued to d.eclinc; to
10,041 at year-end
2002. 'fhe 2002 total included 5,950 federal credit unions and 4,091 state
credit unions. During
tlus fiftean-year period, total credit union assets, loans and leases, and
savings have shown
continued growth. '1 otal credit assets were $217 billion, $450 billion, and
$575 billion at then
S end of years 1990, 2000, and 2002, respectively. Net f;redit union Ioans
increased from $ I39
billion, to $3U9 billion, to $355 billion over the same year-ends. Total
savinp~s (including shares
aid drafts) in U.S, credit unions were $197 billion at the end of 1990, $390
billion ai the end of
2000, and $S00 billion at the end of 2002. Net equity totaled $17 billion, $51
billion, and $62
'billion for the years ending 1990, 2000, and 2002, respectively.
(0013] While the pmor~,~x~a of company structures is available to most
industries in the United
States, to date, bat~.cs have not used the lirnited liability company ("LLC")
as a corporate
organizational vehicle. Tnterestingly, corporate Iaw and harking ragulatiatvs
do not exclude
banks from this particular option. However, no bank has opted to organize as
an LLC talce
advantage of its tax pass through status.
[0014] Recently, the J~1J1C, the uisuring agency for the nation's banks, was
approached
regarding the viability of incorporating a bank as an hlllited )xabtltty
company. The respoase by
the FDIC was that while an 1.LC had not previously been used in conjuxlction
with banki.vg
organizations, there was oo legal or regulatory prohibition against its use.
The FDIC then
indicated that a banking institutiaz~ could use an LLC.
[0015] It is hereby noted that, with regard to wJzat is holown in the prior
a.rt, it would be
ad.vanta.geous to provide an ~fD7C insured banking structure and method of
use, ~,vh~rcin
fi0ka31 vl Page 6 of 25
CA 02465387 2004-04-28
PATENT ANPLIC'.ATZON
C~(7c':K6T N0. 13355.pop:
FXL'RESS MA(1. L.AfiTx.Nb. EV 333 424907 US
individual depositors or cttstomer/owners, collectively refierred to as
''Members," may share in
the profits and losses of the bank in order to stimulate deposits or capital
raising, and still enjoy
the hextelts o.f limited individual liability and partnership taxation. The;
overall company
objectives may include: 1 ) the creation of a unique ban.ki.ng institution
that utilizes an rDI~
insured L:LC as the illStI11122ent of incorporation; Z) the distribution of a
portion ofthe balding
institution's profits ifl local bank founders and hey business meznhers; 3)
the maintaining ofpass
through tax st~ttm of the company and its subsidiaries; and 4) th.e raising of
capital from
individutals and businesses, outside olthe traditional public security n
Markets.
~ 0 SUMMAT2'Y' OF TIDE INVFN''fION
[Ot11.6) Ttu present invention relates generally to a n~etlod of. banlc,ing.
Specif sally, the present
invention provides for a limited liability banking Structure within Which a
bank may operate and
be taxed, and wherein businesses or individuals may beco3iae members of the
banh:ing
organization and may participate in profit sharing and other membership
be~a.e~ts.
1. S (0017 The present irwention may be vic~eved as a rriethod of forming and
utilising a limited
lial.'ility organization that is 'used in the typical environment in v~hich
banks, or. other banking
entities, sucl.~ as credit unions or banking cooperatives, are employed tn
receive federally insured
de~7p51tS, service loans, manage investments, and conduct related financial
txansaetions, but
where it may be advantageous to allow bank members and owners to share in the
pent is and
20 losses of the bane. Further, the present structure aad method provides that
proms ar4 only taXed
soxasj~~ Page 7 of ?5
CA 02465387 2004-04-28
YATGIvIT APPLICATION
SXIC:KF!T NO, 133SS.Dt143
1,XNIZESS l~tAtL J.pREL No. EV i33 424 9U7 t 1S
once at the men~her l.evc;l, similar to a partnership stmcture but with
limited liability oT 110 pass-
through liabilities to the member or o~cwner.
j0018] The advantages over prior art may lie principally in that the present
structure and method
acnotnplishes the aforementioned tasks by maintaining a parent holding
company, organized as a
L.L~', for the management, ilmestment, and general ownership of. the FDIC
insured b;:u~king
entity, and whore each branch, or local ba~~k, is a wholly owned slthsidiary
LLC of the parent
holding; CUn7j3aCiy. Further, local branches or bat~.ks ~may'6e viewed as
extensions of llze FDIC
insured banking entity, endowing full rights of bank membership to local
branch members r~rho
receive pass-through profits, buff with limited liability. As LLC's, the
banlcil~g institutions would
aoot'be taxad and would forward earnings and tax obligalaons to the bank
owners. Without the
t<~x abl,igation, the hrlnkina company would patent:ially stand on edual
footing with credit unions,
if only in relation to the credit union's non-proflt/tax free status.
[0019 The local branches or subsidiary LLC banks may he viewed as "franchise
hanks". Over
the last twenty years, the number of banking corporations has sharply
declined. While there are
1 S rr~ore banlc branches and offices than ever before, these are part of
larger and larger corporate
institutions. At the same time, the cost of stinting new banks and the
regulatory load placed on
all bal~l~il~g institutions malce it extremely difficult to successfully
launch new banks. It is
esti~~ated that the minimum capital required to fund a new balk no~v exceeds
~S million. This
single requirement rn~t.lces it prohibitive for many potential investors tp
embark. in a banking
enterprise. The intent of the hank a~olding cotzlpany is to provide a unique
banking stntctltre that
will assist 111VBSt~rS Ih local cos~rnunaties to successfully start up and
optr't'ate community-based
soeam~ 'page S Of 25
CA 02465387 2004-04-28
1'nT'LN'1' APPLTGr~TION
DOCKET NO. I3355.0002
GA'I'1'tI:SS MA IL LAf33l:L N(a. EV 393 42'!07 I,!$
banking institutions. The present method includes the above stated advantages
of ate LLC, along
with access to a bank charter, FDIC insuraaace, and an operating model.
[0(120j Another objective of the ,pre;sont method is to create an envirotunent
in which bank
business customers can become member-partners in the business. This is
achieved by
establishing prcierred member accounts with minimum deposit amounts. The
initial deposit
entitles banlc business customers to become member-partners in the local
banking comgmy.
Membership in the local bank will give the business member-partner access to
preferred services
and Fates. Thr~ member-partnor ~cnrill also receive a distribution of the
local hartl,,s eami.ngs, based
on a formula relating to average deposits held by the bank, interest and fees
earned by the bank,
I O and business referred to the banlc by the member-partnea~.
'OO~I] In addition to business-mc;mbers, other individual cmtooters, or
members, will also be
part of the bank's marketixtg effort. While these individual rnem.bers receive
a nominal
distributiola of their local banks eal7tings, they will be able to iahe
advantage of lorxrer rates
generated by the pass through taxing advantages of the LLC bank.
15 [0022] A further aspect of the present method is that a mechanism wi ll he
in place for the
disiribcGtion of a portion of earnings to the founders, or initial investors,
of' the bank. As
previously stated, the ability to distribute earnings to investors is a
distinct advantage an LLC
banlc would have over a credit Lls>.ion.
~ooz~~ Additional features and advantages orth~ inventiowexri:ll be se;t forth
in the detailed.
20 description 4vhich follows, taken in conjunction with ttte accornpanyi.ng
drawings, wJtich together
illustrate by way of example, the fearitres of the invention.
508aJ1v1 ~ay~e ~ Qf 25
CA 02465387 2004-04-28
~~,~rLN~r ArrLtcn~noN
nocca~r No. t sass,oooa
1?,XYRt~.SS MAIL l.Al3uI. NQ. EV 333 434 907 US
BRIEF D'N:BCRII'T~'~N OF TT~E DRA'WrrN'GS
J0024] The present structure attd method consists in the no~cl combina.tian
nfparts heroina.fte~~
more fully described, wh~rei~ Like nttmhers correspond to like elements
t~etweon tha appended
dravcriugs, as illustrated and claimed, rc~rther, there is shown in tlae
drawings an embodiment
which is presently preferred, it being 'understood however, that the invention
is not limited to the
exact form as shown herein.. A brief description of the drawings is as
follows:
FIGURE 1 is a chart afan illustrated embodiment of a structure of the present
system of
member banking 10;
FTGL.rRE ? is a ch.axt of an illustrated embodiment of a holding company 12 of
fine pt-esent
systtam of member banking 10 of F1G'LIRE 1;
FIGI~ 3 is a chart of an illustrated embodiment of a chartcrc;d bank 14 of the
present
system of member banking 10 of FIG'1J''12.F 1; and
FiGLTRE 4 is a chart of an illustratc;d embodiment of a franchise hank y 6 of,
the present
system of. member banking 1 Q of ~FTCr'l.J'RE I ,
D~T'A1LED DESCItIPTIC1N O~' T'!~E I1.LU~TRATED EMBODIMENTS)
[UOZSj Tor the purposes of promoting aa.Z w~derslaz~ding of the principles of
the present
in~rention, reference will now be made to the exemplary embodiments
illustrated in the drawings,
and specific language will he used to describe 111e same. Tt will nevertheless
be ~.mderstood that
no limitation orthe scope of the invention is heroby intended. Any additional
features,
ensaa t ~t Page 10 of 2~
_ . . . . . . .. ..,.p= ~. .$au ..,~~a.,~ .~, ..M~~~ .~~_~. ~~ ,w., .w~ _. _ .
_. _. ___ ___ .. _ __
CA 02465387 2004-04-28
YA'i'FNT APPL1CA'fiUN
LlOCl:.l;T' ir'C,1. 1 a355,D002
EXNRESS MAtL LABFt Na, EV 333 42~ 9p7 US
alterations, furiher modifications, or eql:dvalents of thr; invel~tive
features illustrated hereih, and
alzy additional applications ofthe principles of the ilventian as illustrated
herein, which would
occur to ono sici l led in the relevant art, having possession of this
disclosure, are to be consider ed
within UI~e scope o:f the present lnvent10I1.
j0026] R.efenin,~ now to Figure 1, there is shown d chart of an illustrated
embodiment of the
method of member hanJci.ng 1 U. Specifically, there is illustrated a
structttre fat' the present system
of member hanlcing 1U that includes the formation of a holding company 1?,
organi2,ed as art
LLC to own, manage, assist, build, support, and direct an FDIC i~~sured
chartered bank 14 and
multiple franclvse banks 16 in vaoous locales. The franchise banks 16 may also
be FDTC
I U insured, and a>,-e orgmized as LLC's_
10027) Now referring to Figure 2, there is shown a chart of an illvtstrated
embodiment of the
holding company 12, along with membership compasi.tion and services provided.
The holding
company 12 may consist of a mufti-member board of managers, including
management members
I8, founding members 2U, and/or investment members 22. The xole of the
investment nzembers
15 3?, who may also serve on the mufti-rrt.ember board of managers if elected,
is to provide capital,
typically in the form of liquid or non-liduid assets. Further the investment
metnber class may
include miscellaneous invLStors to the holding company l 2. Tl>,e bole of
management members
J 8, who may also seine an the mufti-member 'board of managers if elected, is
to provide
maczagement services to the holding company I2, typically in the form of
knowledge andJar
20 experience. More specifically, the management member 18 class may include
any initial
investors into the holding company 13 who provided, or helped to provide, the
initial concept
&OBA3tv! page 11 of 25
CA 02465387 2004-04-28
~ATFNT nI~PL~CarrtoN
DCSCK~T NO, 13355.0003
1:'~'PRESS Mr~II. i.AF~ELNO. L:V 333 424 X07 US
and initial capital. Tlio role of foundi~~g members 2U, is to provide capital
and other invest?nent
as required to begin banks in various locales. This may include foundix~.g
members of localized
franchise banks I6, identified as "fianchisc fc~uoding members", as further
deii.ned below.
I~a'gl A board or directors (the ".Boas~d"), including seven members, is
desio~~ated to lead the
holding cc3mpany 22. Members of the board m.ay include individuals with
corporate n~anagemcnt
reshonsihility as well as independent parties from outside the holding company
7 Z. Fu.rthcr, the
holding company I2 is tlZe rnechanisn ~ to implement franeluse banking arid
member banl:ia~g
concepts. A general objective of the holding company I2 is to 'build local and
regional franchise
l~anlcs 16, where locally oriented individuals will tie essential to bringing
franchise banl~s 14. into
1 U their communitica. These individuals may became a source of capital, as
well as a direct
connection with the community as a whole.
j0029] Figure ? also illustrates a representativL set of general services ?4,
as provided by the
holding compmy 12 including, but not limited to, loan soureing services,
marketing services,
mortgage scr~rices, insuraa~ce services, property management services,
equipment leasing
services, consulting services, mutual f«.nd management services, a.ud travel
ag~;ncy services .for
the subsidiary franchise baz~hs 1C. The general purpose of the holding co~-
~~pa~~y 12 in offering
these services to franchise banks 16 is ta: provide regulatory oversight,
thereby ensuring safe and
sound braking p~ actices; decrease the workload of the franchise banks 1 b by
instituting routing
a~~d systemized procedures; and increase the ease of successfully establishinb
and operating the
franchise backs 16 in a unifornlally safe and sound u~araoer by offering
similar services and
products.
6UB431v1 Page 1Z of 25
CA 02465387 2004-04-28
YATFNT AI'T'T.TCA'I'ic?N
D~ChI:'I' N0. J 3355.D002
fiXPRGSS MIAIL LAH~L 1~I0, E~ 3J3 .~3a 9D7 US
[0030 Figure 2 also illustrates a general ~x~ethod o:Cutiliziog ors FDIC
insured limited liability
banlcing structure;, wherein: a holding company 12 r'nay be organized as an
LLC; ai least one
subsidiary franchise banlc 16 may be created, owned, and managed by the
holding company 12; at
least one management mc,~znber 18 may be desi~~ated for contzibutiag capital,
rnalcing deposits,
S and engaginb in management ofthe holding company 12 and subsidiary franchise
1'atzlc 16; at
least one investment member 2~ ma.y be designated for contributing capital and
making deposits
to the holding eon~pany 1?; and at least one founding member 20 may be
designated ar
recognized as having conti~buted to the initial concept or capital required to
initiate the present
system and method 10.
[Q031] Referring nova to Figure 3, there is shown a representative diagram of
an illustrated
ernbodimenl of th.e chartered bank 14. The cha3-tered bank 14 is organized as
a huh, or interface,
between the holding company 1.2 and the franchise banks 16. The ehax-tered
bank 14 i.s a wholly
owned T.LC subsidiary of the holding company 12, and is designed to provide
the franchise banks
16 vcrith access to a bank charter. The chartered bank may perform the
following charter services
?6, not in limitation: consolidating bank accornting infonr~ation; repozting
to regulatory
agencies; providing the model or template "look and feel" for the franchise
banking units
associated 'with it; providing marketing and advertising services; providing
back room support;
providing human resources and human resources matlagement; pexfoming audit
support
functions; providing payroll services; coordinating and pxovidizig legal amd
accounCing support;
providing and managing information technology hardware and soft~varc:; and
providuzg persomel
training and related services.
Goaaam Page 13 of 2S
CA 02465387 2004-04-28
PA'1'~.N'r APPL(GnTIQN
POC1~T Nn. 3335;.OU02
fiXPIZESS MnrL LaE~FI., NO. EV 393 424 907 US
r0032] The chartered hank I4 may also, in addition to the services auZlioed
above, fulfill a role
oFproviding a template, that essentially functions as a fully expanded
buSInESS plan, .for the
f~anellise hataks 16 to Tollow. The template would include, hut is riot
limited to ineludin~: strict
iit~~e.line/schedrle for the start-up of the franchise bwk; initial capilai
available to complete all
aspects of the start-up; selection oF, and a~reemont rNifh, franchise founding
members 30 who
may be involved in management and success of the franehisE bank 1 fi;
completion of al l
regulatory applications and receipt of regulatory appmval; selection of bank
location; setup or
bank infrastraacture; and fonnation of goals and objectives formalized for the
franchise bank's
first year of activity. This role naay be facilitated by providing a standard
operaiians manual,
ine:ltrding company wide practices and procedures, as well as a system for
timely consolidation of
battle aeeo~miing information to insure company success anal meet regulatory
requirements. lt~
addition, an ongoing review process of all aspects of the company may be
established to insure
that goals and budgets are beitag met and that revisions and adjustments are
made as required.
(OQ33] Referring now to Figure 4, there is sho'~r~n a representative diagrarn
of an illustrated
i 5 eranbodime~nt of a representative franchise hank y 6. The franchise bank
16 is a separate banking
unit and is also orgatuzed as an. T~.C. tts stock may be held solely by the
holding company 1?.
For regulatory purposes, the Franchise bank I6 acts as a branch oC the
chartered banlc I ~..
(Ofl34] In ternzs of membership, the franchise bank 1 fi may be initially
comprised of franchise
founding members 3(). The franchise founding members 30, who may also be
members of floe
ZU foutading members 2U for the holding company 12, typioaliy involve a group
of investors in a
local community. These investors serve as the franchise founding members 30 of
the local bank
boas»°' page Z4 of 25
CA 02465387 2004-04-28
rA'rJrN'(' APPLICATION
1~c)CK.ET NO. t3355.(ft>il?
E:xPftirSS MAIL LA73L7. rte). FV 333 424 s07 tJs
and will become a part of the franchise bank's advisory board. They will not
typically have
personal liability for any potential losses of the fl'anchi.SC bank. The
franchise founding members
30 may generate a portion of ~l~e capital necessary w start the new bank.
While the figure is
substmtial, about ~2 n~.illion, it is less thm half the typical amount
required by regulatory
abe~~cies to begin a stand-alone bat~lc eylterprise. The franchise founding
memhers 3~ would also
forgo the regulatory travails new banking organizations encounter as they go
through tht; initial
de noun probbtionaly period. These franchise founding members 30 may also
receive stares in
the .holding company 12 and may receive a distribution of t;amings based on.
the performance; of
their frau~chise bax~lc 16.
lU j~035] More specifically, the role of the franchise founding members 3Q may
generally be: to
contribute capital and accept a proportional risk of loss as well as a pro
rata distribution of local.
profits; to elect board members; and fin vofie to distribute some portion. of
local profts to business
and individual anembers 32, 34 based upon their yearly average balances in
their respective
membership accounts. Business members 32, may participate in the management of
the
15 franchise hank 1 G by electing board members according to a one vote per
member/account
schedule, anay make deposits classi red as business members into interest
bearing accounts, and
may receive yearly distributions of profits according to a measure of their
account activity,
account balance, interGSt paid, volume deposits, or a similar itadex. Finally,
individual mcambers
3? rnay participate io manageme~.it by electing board members according vo a
one vote per
20 mcrnberlaccoua~t schedule, may make deposits classified as individuals, and
may receive yearly
~f1b431V1 Page 15 of 2~
CA 02465387 2004-04-28
hATENT APpLIC;aTt~N
t7C7C,'.KftTNO, 133SS.0011?
liXPRFSS MAtL LnC3l;L NG. EV 333 424 907 tTS
distributions of profits according to a measure of their account a,ciivity,
account balance, interesi
paid, volume dCpt)S1LS, or a simil°~r index.
[003(i) The franchise bauc's advisory board. is invited to include seven
individuals. Three board.
members may come from the founding members of the banlc 20, with one
representative pulled
Crom the holding comp~u~y 12, one reprESCntative from ttae chanter banlc 14,
and two
representatives from the bank's member-part~.ler group, drarwn from business
members 32 or
individual m~mbcrs 34.
(0037] In relation to size, it is important that the ,!'ranchise bank 1 G is
perceived as a local,
community bank, but large eoougU too attract the premier business customers in
the area.
P~rsanal liability for banking operations will be wi tb the board members of
the chartered bank
14. These individuals must, with the help of the franchise bank advisory
board, be intirnatcly
involved in the franchise bank's decisions.
[OU38] The business model for franchise banks 16 may be based ox~ the pattern
envisioned by the
holding company 1? and the ehactered bank 14. The customers of the bank may be
comprised of
business me~~zbers 32 and individual members 34. The pass through tax status
of the LLC will
allow the franchise bank 16 to compete favorably watts the other area banics
a?.~.d against non-
profit credit unions. The member status of depositors vvho may share in profit
distributions, the
comp 3uniiy-based advisory board, and the wide variety o.f bal~lci:n,g
products available are
projected to stimulate strong, local customer loyalty.
?n 10039 As for specific services that participating franchise banks I6 may
provide, tlae following
list is provided for illustration only, not in limitation: convenient
operating hours; personal
uos4~m Page 16 of 25
CA 02465387 2004-04-28
PATENT Af~PT.ICA"1'tbN
>7nGKFT N0, t335s,0002
EXPRESS NfAIL LAH>rL N(). Ev 333 .~?4 X07 LIS
rclatiesnship basting; on-line han.hing; 24-hour account access by telephone;
direct deposits; wire
transfer services; safe deposit boxes in all sizes; cashier's checks; utility
payment program;
special credit. card services rar students (na credit required}; postage
stamps; utility payment drop
box; overdraft protection, bounce protection; free medallion stock guarantee
sewice; notary
services; money orders; 24-hour drive-up ATMs at all locations; 'V'isaTM and
MasterCardT~g
program; checking accoura.ts; savings accounts; and a myriad of loans.
r~FMAF~1G5 R~GAFvDING THE ILLUSTIZATFT.3 EM~4Y)ZM~1~1'1'{S}
[004U] 1"n general reference to the drawings as considered in their entirety,
the present structure
I 0 creates a L~aWizzg entity stlv.cture, utith a corresponding method of
u.se, which is organized undei°
state law Lithor through its holding company, the bank itself, or both, as a
federally insured LLC.
~(Jndea' this .form, owaiers array be i°eferxed to, or de~ned9 as
»em.hers with all profits and losses
passing through to the owners under a partnership, or one-time, taxation
scheme. Therefore, a
tmidue ba~.hing entity naay be organized whereby owners become profit sharing
members, in
contrast to traditional shareholders.
00041] This a taidue system of allowinb customers to become profit sharing
members, as referred
to herei.z~ as meanbers of the bank or financial institution in which they
participate, is a primary
tenet of the "member baz~lv.i.ng" melhad. This allows typical FATC insured
depository
institutions, connnonly referred to as banks, to adapt the attributes of
Gammon credit unions or
cooperatives- In particular, fhe membc;r bank may 1~e owazed and managed by
its mc;mbers who
are also bank c~astorners. Io contrast to a credit union, which is a
n.otaprofii organizatioa~., the
' 1'a~;e 17 of 25
CA 02465387 2004-04-28
PA1'!M'1' APP(_1C:ATioN
DOCKET No. 13355.0(H.13
taXYItESS ,'~IAtI. I..ABFL NU. EV 333 424 907 tJS
members of the bank 'would receive an actual distribution of a portion of the
ban.k's profits, based
upon the defniti.on of the various class of members into which the particular
individual or
business may belong.
[0042) It is perceived that the ganeral hene~ts of the present system and
method over the prior
an include, but are limited to, the following When considered individually or
in combination: a
unique corporate banlcing structure, n.atnely the limited liability
orbazuzauon; pass throrzgh lax
capability; a zn.ernber-based ownership and reward structtwe; an ability to
make local credit
decisions; highly committed and experienced omployc~es; a unique banking
atmosphcrE based an
comn'zitzrtent to business a~~d izidividual members, who are treated like
owners; as aljil.ity to build
banlting units Witlun an existing corporate structure, thereby eliminating the
need to start from
the ground up as a typical banking entity; an ability of the charter and
franchise banks to offer
rDIC protection; and an ability of tl~e holding company to o:frer a multitude
of varying.business
services, including potential acquisitions of banks, credit unions, and other
businesses.
DESCRIPT10N OF T:C1ZM~NO~OCY
[0043 '~'he following is a brief description, or defzn.ition, of terms as
uniquely understood in
relation to the present structure at~d method for member baa~kiz~g. 'Various
classes of ovrners or
shareholders may have distinct designations..'Firsi, them is abroad class
involving all owners
that would be generally referred to as "me;mbers". Second, there is a more
specif a class called
''mazzageznent members" which reters to those members involved iv bank
manaDement_ Thixd,
another class is for "founding members", or those members involved in the
initial founding of the
~°g°~'~~ Page 18 of 25
CA 02465387 2004-04-28
rnT~cNr nr~L~cn~rronr
1~UC:KF7 NC7. 13355.OD03
P~CPRESS MA1L ~W :.L'na. ~V 333 42a hu7 cJs
banking entity. 1~ourth, there is a more specific class called "i~~vestment
mc;mbers" which refers
to those naemhers involved generally with contributions of various forms.
Fifth, there are
"franclzise founding members" who may be involved with contributing time,
talent, and capital to
the organization of the rranchise banks, or ofthe general founding of the
hoidir~g company ands
chartered b~u~k. On the customer side, "business members" way be generally
asad to designate
those members thai independently qualify as businesses. Finally, and without
limitation, there
may be an "individual members" class for those m,erribers qualifying as
individuals.
'~4,TtTA.TrON~S Clh~'I'~Ih )ILLUSTRATED EIVLBaDIMENT(S~
i0 (0044] It is understood thal the an~angements described above are
onlyilPustrative o.fthe
application of the principles of the present invention. Numerous modifications
and alternative
arrangements may be devised by those skilled in the art without departi~~.g
from the spirir and
scope of the present inven.tioa, and tl~e appended claims are intended to
cover such modifications
and anangenzc;nts.
15 [0045] For example, in addition to the illustrated banking str~ictuxe, it
is noted that tree set of
general services provided by the holding company may be expanded Lo include
additional
services such as technical support, software man agement, or property leasing
arid maintenance.
Altu~rn.atively, the holding company may bc; contracted to engage in only one,
ox no ~.dditional
service(s). The franchise banks may be required to carry out a ~tvide array of
similar services
d.epe11C1111,'~,' on the number and naturL of speci. .fic services allocated
to the holding company.
601f431vi Page 19 of 2~
CA 02465387 2004-04-28
PAT$NT AL'!'L1CA'1'1L)N
uclc.ICI;T No. t3355.tJ002
6?iPC..xSS rvtAll . t.A6EL Na. ~:v 333 4?4 n07 US
[~D046j The use of niuJtiple holding companies and chartered banks are also
contemplated. In
contrast to maintaining a single holding company organized as an LLC, multiple
holding
companies arid chartered banks, wllieh are orga»i:red to rnanagc said own
subsidiary franchise
banks in diverse Jocations, arrr also contemplated as falling within the scope
of the present
112v'~:11[lall.
j0047j Another variaiian of the present system and method is that ao internal
audit procedvtre
ma.y be incorporated into all company levels. Additions to the number and
nature of classes of
members are also contemplated. For e:cample, there may be added a simplified
class of
rnen~bers, who may share iaa a limited amount of profits, who may have limited
votinD powers,
andlor wha may share in a diminished risic of Loss.
~°R~"V' Page 20 of 25
