The merchancy is a transhumanist / science fiction thought experiment that has fallen out of fashion in recent years. It essentially a sovereign state that is run by a business. This state has police, owns the land, makes the rules, and offers something akin to citizenship ('membership' might be a better word) to those who can pay. The merchancy may provide all of the benefits that we associate with governments, but does not claim any rights towards its members except those set out in the membership contract. These rights are generally less intrusive than those that would be assumed to be held by a traditional government. For example, a merchancy would not generally have the right to undertake a draft, to levy an expatriation tax, or to impose a death penalty (of course, these are fictional entities, so YMMV).
The term 'sovereign state' is important here -- the merchancy is generally assumed to be the highest present level of government, and does not need to pay taxes to a higher power, and does not have external laws imposed on it. The only power greater than the merchacy is the power of the citizens/clients to get up and leave if they don't like how it is run.
The perennial example is Mr. Lee's Greater Hong Kong in Neal Stephenson's novel Snow Crash. The term is credited to Anton Sherwood, a noted, although mostly retired, transhumanist.
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