A portion of any annual profit made by a project (income minus expenses) is paid out at the end of the financial year as a management fee. Management fees are paid to:
- Holders of Type 1 and Type 2 Conversion Notes (considered equivalent for this purpose)
- Kentron Ltd
The proportion of the profits, hereafter the Profit Portion, paid out as a management fee, is determined by the Project Leadership Team, but must be at least 20%, leaving at most 80% of the profits to cover future project operational costs. The following formula is used to determine the management fee payment:
- Perc is the percentage (typically 90% to 95%) of the Profit Portion paid to holders of Conversion Notes in that project. This value is usually specified in the contract with the client organisation. The remainder of the management fee is paid to Kentron Ltd (i.e. between 5% and 10%).
- Num1 is the total number of Type 1 Conversion Notes that have been issued by the project.
- Num2 is the total number of Type 2 Conversion Notes that have been issued by the project.
A project generates $100,000 in revenue in a given year, incurs $80,000 in costs, and therefore makes a profit of $20,000. If that project allocates the 20% minimum as the Profit Portion (keeping the remaining 80% to reinvest in the project), has Perc set at 95%, and has issued 5000 Type 1 Conversion Notes and 10000 Type 2 Conversion Notes by the end of the financial year, then:
- The Profit Portion is 20% of $20,000 = $4,000.
- Each holder of a Type 1 or Type 2 Conversion Note receives 95 × $4,000/(100 × 15000) = 25.333c for each Conversion Note held.
- Kentron Ltd receives a total of $200 (5%).