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Guide: Exit Your Business | Strategy Twelve

Worker Co-ops

Considering a worker co-op exit strategy? First understand, ‘What is a worker co-op?’ - A worker cooperative is a value-driven business that puts worker and community benefit at the core of its purpose. A business is owned by its workers. Employees can buy a membership to become an owner. They are then entitled to a portion of the money that the business makes and have decision-making abilities during business related votes. The two central characteristics of worker cooperatives are:

  • Workers own the business and they participate in its financial success on the basis of their labor contribution to the cooperative.

  • Workers have representation on and vote for the board of directors, adhering to the principle of one worker, one vote. 

An exit strategy by Co-op can be particularly advantageous for ventures that have a strong purpose, rather than making money alone. Chances are high the employees working for the business will be as committed to that purpose as the founders themselves. Employees will gain from taking ownership of the company, not only financially, but also from being able to influence the company's strategic future. 

For employees, it is likely that their motivation will be greatly enhanced, as opposed to a sell-out to new owners. They will have a more direct sense of participation in the future of the enterprise. The process may be somewhat drawn out, with a larger number of individuals involved compared to a sale ownership transition. The Co-op route may require more negotiation, given that while the commercial operations continue as normal, the employees may be more reserved about the change.

The owner who seeks an exit strategy by Co-op needs to proceed cautiously. This strategy requires a longer lead time to plan than an outright sale of the business, given the human factors involved. Human factors are probably the most critical aspect of an exit strategy by Co-op. Buying into the dream created by the founders is not easy, unless the company founders have already created a way that meets the aspirations of the people employed.

Frequently Asked Questions

Do you have questions about exiting your business? You should consider checking out our Resource Navigator. It houses the contact information of 400 of our most helpful partners from across the state who provide free to low-cost assistance to Iowa entrepreneurs and small business owners.

Q: What is a worker co-op?

A: A worker co-op is a type of business where the workers are entitled to a portion of the money made through the business because they have bought into the business through a membership.

Q: What are the benefits of a worker co-op?

A: There are many, but one key benefit is a shared goal/mission to improve the business long term. Sometimes employees just want to earn their paycheck and are only willing to give so much. If there is some sort of ownership and shared profit at the end, you could see an increased worker productivity for years to come.

Q: How do I know if my business would work as a worker co-op?

A: This depends entirely on your type of business and current and future employees/co-owners. Consult with a financial advisor about this strategy and if it would be worth transitioning to for your business.

 

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NOTICE: The information included on this website is to be used only as a guide. It is not intended to cover all provisions of the law or every taxpayer's specific circumstances.

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