Funding Blocks Guide

Fairly Exact keeps cash outside the member ledger through two connected records:

1. Cash ledger: Records what each member has put in for the company and how their balance is resolved.
2. Funding Block: Records the business terms under discussion and references a separate professionally prepared instrument.

Neither record creates repayment, downside, upside, voting, or ownership rights by itself. Only accepted Contribution Blocks mint member-ledger units.

The cash ledger records money moving between members and the company, not the company’s own finances. Customer revenue, the company’s balance, and what it spends are not recorded here.

What Builds a Balance#

• Expense: a member pays for something on the company’s behalf.
• Cash contribution: a member gives the company cash directly.

Record the amount, purpose, date, and supporting evidence as it happens. A member records their own, or an owner or admin records it for them. Recording needs no vote, because it decides nothing: it states what happened and adds to that member’s balance. It creates no repayment right by itself.

Resolving a Balance#

The team resolves each member’s balance separately, by amount, in whole or in part, whenever it decides to:

• Reimbursement: the company pays the member back.
• Conversion: the amount moves into a Funding Block, at any amount, including below the minimum. It changes what that member holds outside the member ledger, so it takes a vote by default.

Capital#

An intentional cash injection of at least the Funding Block minimum (team-set, default $5,000) can open a Funding Block directly. Whether it does is the choice of the member putting the money in; if not, it is a cash contribution and adds to their balance.

When it opens a Funding Block:

• Record the amount, purpose, proposed business terms, and negotiation notes.
• Approve a specific revision of the terms (see Approving Terms), then attach the instrument reference.
• Do not apply a Contribution Block size or stage multiplier.
• Do not mint member-ledger units.
• Have qualified professionals prepare or approve the separate instrument before relying on any repayment, downside, upside, voting, or ownership term.

Smaller amounts go through a balance instead, so the team is not negotiating an instrument over every small sum.

Paying Contributors#

Cash the company pays a contributor for delivered work is the company’s expense, not a cash-ledger entry. The team weighs it when sizing that contributor’s block. See Contribution Blocks.

The distinction keeps member cash visible without allowing a ledger entry to masquerade as a financing agreement.

Cash has an exact recorded amount, while work is sized through a contractor-equivalent scope proxy and accepted after delivery. That difference makes a separate negotiation more honest than forcing both into one formula.

Before recording proposed funding terms, ask:

1. What problem does the cash solve?
2. Can the need be reduced, delayed, or met through revenue or another arrangement?
3. What amount is actually required?
4. What downside, upside, repayment, or conversion expectations does each party have?
5. Which qualified professionals will document and review the agreement?

Company stage can inform the conversation, but the Contribution Block multiplier does not apply to Funding Blocks.

Opening a Funding Block records proposed terms; it decides nothing. Approving them is a governance decision, because a financing arrangement can change what every member ends up holding outside the member ledger.

By default, approval is a voting matter at a two-thirds supermajority of eligible voting units. The team can change that threshold, or the gate itself, through the governance policy, and should set it to match what its operating agreement requires. The operating agreement governs.

Approval applies to one revision of the terms. Revising approved terms returns the Funding Block to negotiation, and the new revision needs approval again. Once approved terms are joined by the separate instrument, the Funding Block is documented.

Approval records that the team agreed to the proposed business terms. It creates no repayment, downside, upside, voting, or ownership right; any such right comes from the separate instrument.

Record the answers to the questions above alongside the terms, and the answer to the Golden Rule below, so the people approving them can see the reasoning as well as the result.

Fairly Exact offers a team-set negotiating position for discussing a distressed outcome:

proposed cash recovery = min(configured split × proceeds, recorded capital)

Set the split here, when the first Funding Block opens — not at adoption. It prices a situation a team without funding is not in, and settling it early means negotiating terms nobody needs yet. Record the number and the reasoning; changing it afterwards is a governance decision.

At the default 50% split, the proposal would divide proceeds between cash and sweat until recorded capital is made whole. This is a business discussion aid, not an automatic entitlement, distribution rule, liquidation preference, or complete financing model.

The configured split is a starting point for negotiation. A separate professionally prepared instrument must define the complete treatment, priority, denominator, dilution, and interaction with other interests and obligations.

Funding Blocks, outside investments, and other financing arrangements do not receive units in the member ledger, do not enter ledger-weighted voting, and do not participate in its final allocation.

The Funding Block record should contain:

• the cash put in directly, or the balance converted into it;
• proposed terms and negotiation history;
• required governance approvals;
• the separate instrument reference;
• professional-review references; and
• the status of the arrangement at finalization.

Do not describe a Funding Block as minted. Record or open the Funding Block; only acceptance of a delivered Contribution Block mints member-ledger units.

A priced financing is one mandatory finalization trigger, but it is not the only one. At the earliest trigger:

1. Resolve Contribution Blocks and freeze the member ledger.
2. Calculate each contributor’s frozen member-ledger percentage.
3. Have qualified professionals implement the selected fixed-LLC or corporate-conversion path.
4. Reconcile each Funding Block and outside financing instrument under its own terms.

The member-ledger final allocation does not silently absorb or resolve separate funding arrangements.

Would the proposed business terms still feel fair if the parties’ positions were reversed?

Document the answer, the assumptions, and the professional review. Transparent negotiation is more useful than pretending the framework supplies a universally correct financing formula.