by Sarah Kaplan, Attorney
Seeking to sell a business? Retiring business owners can strengthen their local economies by selling to their workers. In a worker cooperative, the workers own and manage the business democratically, and share the profits according to how much each one worked. In a co-op conversion, the retiring owner leaves a legacy of both the established business and empowered workers.
Converting the business to a worker cooperative could be as simple as selling LLC memberships or stock to the new worker-owners, and signing an agreement that spells out how the business will be operated as a cooperative. Or the new worker-owners can form a cooperative corporation that buys the assets of the old business. Sometimes the workers take over management immediately, and sometimes the retiring owner stays on as a worker-owner for some time period to make a smooth transition.
Your first question might be, would this work for my business? Many different kinds of businesses can be worker co-ops. A good place to start finding help is the Democracy at Work Institute.
Next, how will the new co-op raise capital to purchase the business? Cutting Edge Capital has advised co-op conversion clients, where the workers raised enough cash to buy the business! See some success stories here.
Bonus! When you sell a business to a cooperative and roll over the proceeds to qualifying securities, the capital gains tax is deferred. Check with your tax professional to make sure your situation qualifies.