Selling a business to the employees has become a common way for small business owners to exit. Such a sale brings significant tax benefits to the seller, along with the satisfaction of knowing that those who helped build the company, and know it best, will shepherd it into the future. Worker co-ops are considerably less expensive to set up and maintain than are ESOPs. As with an ESOP, proceeds from the sale of a business to a worker cooperative can be rolled over into qualified replacement securities, deferring taxation until the securities are sold. The worker cooperative is an ownership structure that allows for a wide range of operating structures.
Some worker cooperatives are highly democratic, with a collective decision-making process.
Others are quite hierarchical, with authority to make many decisions delegated to well-paid managers. In order for a sale to a worker cooperative to happen, employees need to be brought in early, and should take a leading role in organizing the purchase and conversion. While a steering committee of employees can do the bulk of the work, all prospective members of the co-op will need to be involved at key points. Owners must be willing to share financial information. A business is more likely to succeed as a cooperative if the previous owner has established a workplace culture of mutual respect and openness, and has involved employees in decision-making.