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Do not sell your business, convert it to a worker cooperative

0% Commission

Defer capital gains tax

Why sell to your employees?

First of all, you do not have to pay a commission. The additional exposure to potential investors a business broker can give you may not get you a better price anyway. Here is why.

No one else have more at stake. They will be worried about their jobs. No one is more motivated.

Your seller financing will be protected. You know who the buyers are and what they care about. No one is a better buyer.

You may be able to defer capital gains tax

If you have a C-corporation and sell at least 30% to an Employee Stock Ownership Plan (ESOP) or a qualified worker-owned cooperative, your capital gains may be deferred when you follow all the requirements of Section 1042 of the Internal Revenue Code.

The ESOP option is really expensive and complicated and out of reach for many small companies. The worker-owned cooperative then becomes the method of choice.

Maybe it still sounds too complicated, but it really isn't. Your lawyer and your accountant may have to learn a thing or two about Section 1042 exchanges and Cooperative Corporations law, but everything else is pretty much the same as any ordinary sale.

10 steps to converting your business to a cooperative

  1. Establish what you want to accomplish for yourself, your family and for your business.
  2. Consider the pros and cons of selling to your employees.
  3. Come up with a proposal that meets their needs as well as your own.
  4. Present it to the employees.
  5. Execute a letter of intent.
  6. Help them get organized and fully informed.
  7. Prepare a contract.
  8. Prepare all the documents that transfer rights and ownership.
  9. Closing.
  10. Begin operation as a worker-owned cooperative.

Need help?

You can do all this on your own with assistance from the advisors you know and trust. Sure, it is unfamiliar territory and it will be a little uncomfortable. Fortunately, there is a growing body of experience readily available

National Cooperative Business Association
United States Federation of Worker Cooperatives
New York City Network of Worker Cooperatives
Legal Guide to Cooperative Conversions

Of course, you can also contact me. I am not a lawyer and I cannot give you advice, but I can help you facilitate the conversations you will need to have with your employees, perhaps even your friends and family should you need it.

I am not a business broker and I do not charge a commission. I do not have grant money availabe, so donations are accepted. In keeping with cooperative principles I should think my time has the same value as yours.

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Finn Mauritzen is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.