Worker cooperatives have a long and rich history both in the United States and internationally. While they are relatively rare in the US last decade has seen an increase in the number of worker cooperatives. Today there are an estimated 450 worker cooperatives in the United States which employee around 7,000 individuals.
An employee owned or worker cooperative is a corporation owned and controlled by its employees that jointly markets the products or services produced by its member-employees in the same way as a farmers’ cooperative markets its members’ production of grain or milk. In most employee cooperatives, each member-employee has one vote in the affairs of the cooperative.
Its profits are allocated among the members on the basis of the value of the labor (“patronage”) each contributes to the co-op. In co-ops, financial ownership is generally separated from voting control and distribution of profits. In some ways they resemble the operations of a Partnership or LLP, but in others they are different. Two distinct features of worker cooperatives include the board being elected on a one-member one vote and worker-members receiving profits based on their labor in the cooperative.
Selling to your employees via an worker owned cooperative can satisfy a number of needs for a seller. For many business owners, leaving a legacy to the employees and the community is an important factor. A sale to employees can create a buyer for a profitable company that may find the "open" market less viable or even personally appealing. And in certain cases, a sale to the employees may allow the owner who is not ready to retire the chance to transition out over time, or to gain some liquidity in their assets. To learn more about worker cooperatives click here.
Employee-Owned Cooperatives have fewer moving parts, and a lower regulatory burden (and a lower corresponding cost to set up and maintain) than ESOPs. They are usually cheaper to set up than an ESOP and can therefore be a viable option for smaller companies. The dividing line for balancing the lower costs of a cooperative vs. the immediate tax benefit of an ESOP is typically about 25 employees.
As is the case with an ESOP, a sale to an Employee-Owned Cooperative can allow the seller to defer Capital Gains taxes.
You can purchase our books, An Owners Guide to Business Succession Planning and Selling Your Business to Your Employees which provide clear, plain language overviews of the process of planning for succession and selling your business. You can also review our publication Conversions to Worker Cooperatives A Toolkit for Cooperative Developers and review other resources and reports on worker cooperatives here.
You can purchase access to our online training course in Selling to Your Employees at this link.
You can give us a call at 330-672-3028 or send us an email to set up an initial consultation.
Below are webinar videos covering various topics important to consider when selling your business to your employees using a worker/employee-owned cooperative.
You can find more helpful presentations by accessing our network webinar archive