Co-op Conversion: More than an Exit Strategy

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.

Cutting Edge Counsel

About Cutting Edge Counsel

Specializing in both traditional and new economy law (benefit corporation, cottage food, sharing economy, crowdfunding, etc.), Cutting Edge Counsel offers a full menu of legal services to organizations of the new economy. Contact us at info [at] cuttingedgecounsel.com.
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