Worker co-ops: Like ESOPs, but better

Unlike an ESOP, which merely makes present employees future beneficiaries, a worker co-op is democratically controlled by current employees on a one-person-one vote basis



Published:

To the editor:

I read with great interest the Feb. 21-March 6 article by Steve Burke, Beth Fowler and John Bentas of the McLane Law Firm heralding "the biggest transition of business ownership in history." They're right – but they only got half the story.

As the three tax lawyers pointed out, ESOPs (employee stock ownership plans) can be an effective exit strategy for owners of closely held businesses who are hoping to cash out while providing retirement security for their employees. But ESOPs fall well short of true employee ownership.

The great ownership transition includes another option – worker cooperatives. Unlike an ESOP, which merely makes present employees future beneficiaries, a worker co-op is democratically controlled by current employees on a one-person-one vote basis. And since the first modern cooperative was created by a group of disenfranchised British weavers in 1844, this form of doing business has thrived by putting people in control of their own fate while plowing the wealth they generate back into their communities.

Investor-owned businesses – even those with ESOPs – cannot claim the same history of success.

Worker co-ops are not for everyone and, regrettably, to form one in New Hampshire likely requires incorporation elsewhere, inasmuch as the Granite State lacks a worker cooperative statute.

But your readers should be aware that a business owner who sells her enterprise to a worker cooperative started by her employees can reap the same tax benefits under the Internal Revenue Code that the creation of an ESOP offers. And, at a time when so many people are yearning for another kind of great transition – one to a more humane economy – a worker cooperative is a great option for socially conscious entrepreneurs who want to pass their businesses on to the people whose labors have been integral to the success of those enterprises.

 

Donald M. Kreis

Law Office of Donald M. Kreis

Norwich, Vt.

Edit ModuleShow Tags