Worker Cooperatives

What is a Worker Cooperative?

  • Cooperatives are member-owned companies in which governance control is on a one person/one vote basis. In a worker cooperative, only those who work in the business are eligible to become members.
  • Cooperatives are typically set up as corporations, and in some states, there are worker cooperative statutes.
  • Workers who are members are equal owners, elect the board, and vote on major company decisions on a one-person/one-vote basis.
  • Members receive a share of any annual net income, usually distributed on the basis of hours worked.
  • Operational decisions can be participatory or more conventionally hierarchical.

How Does a Cooperative Work?

  • Typically, employees become eligible for membership after working for the business for a period of time specified in the bylaws.
  • After the employee has been accepted for membership, he or she purchases a membership share which, in most cases, has a fixed value.
  • Most cooperatives establish an internal account for each member to which their share of net income is allocated, in proportion to hours worked or some other equitable measurement of their contribution. This share of income is deductible to the company, but taxable to the employee.
  • When employees leave, the co-op buys back their membership share and pays out their account balances. While members are employed, the cooperative must pay out at least 20% of their annual patronage allocation in cash, in order to help them pay taxes owed.

Benefits of Worker Cooperatives

  • Lower set-up costs than other forms of employee ownership.
  • Persons who sell at least 30% of the shares in a business to a worker cooperative are exempt from capital gains taxes if the gain is reinvested in U.S. securities.
  • Worker cooperatives allow members to build equity and participate in the governance of their workplace.

Additional Resources