Deciding to Convert into a Democratically run Worker/Owner Cooperative

Introduction to Employee-Owned Cooperatives

Cooperatives are member-owned and democratically controlled businesses that distribute profits based on an equitable patronage system.1

In addition to ownership, control, and patronage-based profit sharing, most cooperatives adhere to the seven internationally-recognized cooperative principles: (1) voluntary membership, (2) democratic member control, (3) member economic participation, (4) autonomy and independence, (5) education, training and information, (6) cooperation among cooperatives, and (7) concern for the community.2

Our Freedom

Deciding to Convert into a Cooperative

Worker cooperatives present economic advantages for worker members, consumers, and the local communities in which they reside. Cooperatives help keep money circulating locally, thus providing communities with a greater degree of economic autonomy, they afford members with greater job security, foster community and worker happiness, and are conducive to environmental responsibility, since they are so rooted in local communities.21 Thus businesses that are trying to foster these values should consider the cooperative form.

Economic Update: Seattle Firm Converts to Worker Co-Op

Published on Dec 3, 2018

The decision to form or convert an existing business into a cooperative typically involves additional considerations beyond future competitive advantages. Business owners considering converting into a cooperative should also consider whether the business’ workers are open and committed to cooperative principles and prepared to assume a more active role in business management.22 Additionally they should assess whether the appropriate financial circumstances exist to enable conversion. In assessing whether and how to convert into a cooperative, professional assistance from legal, financial and accounting professionals can prove essential.

The next section covers the mechanics of conversion, highlighting four possible ways for people to sell a business to their employees, and form an employee-owned cooperative.

  1. Think Outside the Boss, at 1-2 East Bay Community Law Center and Sustainable Economies Law Center (5th ed. 2014) available at https://d3n8a8pro7vhmx.cloudfront.net/theselc/pages/146/attachments/original/1417036445/TOTB5_Manual_FINAL.pdf?1417036445.
  2. Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 26-27.
  3. See Peter Molk, The Puzzling Lack of Cooperatives, 88 Tulane L.J. 899, 917 (2014).
  4. Jaques Kaswan, Projecting the Long-Term Consequences of ESOP Vs. Co-op Conversion of a Firm on Employee Benefits and Company Cash at 1 (Democratic Bus. Ass’n of N. Cal. ed. 1992).
  5. See e.g. Key Studies on Employee Ownership and Corporate Performance, nceo.org, http://www.nceo.org/articles/studies-employee-ownership-corporate-performance (last visited March 20, 2015).
  6. See Kaswan. at 11-16 (arguing that for low-growth employee-owned firms, Co-op members should experience increasingly higher benefits when compared with ESOP members, while in high-growth firms ESOP members experience higher benefits during the initial years, followed by a reversal where Co-op members experience higher benefits for the duration of the business’ life).
  7. See e.g. Delivering Responsible Capitalism – The Growth of Employee Ownership, Forbes Opinion (September 25, 2014, 7:32 AM) http://www.forbes.com/sites/jonathanrefoy/2014/09/25/delivering-responsible-capitalism-the-growth-of-employee-ownership/.
  8. See Bruno Roelants et al., The Resilience of the Cooperative Model (CECOP-CICOPA Europe, June 2012) available at http://cecop.coop/IMG/pdf/report_cecop_2012_en_web.pdf.
  9. Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 27.
  10. Think Outside the Boss, at 3 East Bay Community Law Center and Sustainable Economies Law Center (5th ed. 2014) available at https://d3n8a8pro7vhmx.cloudfront.net/theselc/pages/146/attachments/original/1417036445/TOTB5_Manual_FINAL.pdf?1417036445.
  11. See Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 28.
  12. See 26 U.S.C. 1042
  13. See Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 28.
  14. See 26 U.S.C. 1042 (c)(2)(E) (allowing some members to have greater ownership interests); see also infra p. 13.
  15. See Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 31.
  16. See Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 31.
  17. See Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 33.
  18. See Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 33.
  19. See Sushil Jacob, Representing Worker Cooperatives in the 21st Century, California Law Practitioner, Winter 2014 at 33.
  20. Think Outside the Boss, East Bay Community Law Center and Sustainable Economies Law Center (5th ed. 2014) at 14, available at https://d3n8a8pro7vhmx.cloudfront.net/theselc/pages/146/attachments/original/1417036445/TOTB5_Manual_FINAL.pdf?1417036445.
  21. Think Outside the Boss, East Bay Community Law Center and Sustainable Economies Law Center (5th ed. 2014) at 4, available at https://d3n8a8pro7vhmx.cloudfront.net/theselc/pages/146/attachments/original/1417036445/TOTB5_Manual_FINAL.pdf?1417036445.
  22. Think Outside the Boss, East Bay Community Law Center and Sustainable Economies Law Center (5th ed. 2014) at 7, available at https://d3n8a8pro7vhmx.cloudfront.net/theselc/pages/146/attachments/original/1417036445/TOTB5_Manual_FINAL.pdf?1417036445.

Co-opLaw.org

legal information, best practices, and supporting tools for cooperatively owned businesses and organizations

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