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The mutual benefits of worker-owned cooperatives in Colorado

Many U.S. businesses were established as worker cooperatives. Today, as many as 40 percent of worker cooperatives started as traditional businesses.

As baby boomers, who own roughly 12 million U.S. businesses retire, fewer children are taking over their parents’ businesses than ever before. In turn, forcing this generation to sell their companies or potentially close down.

Understandably, many are taking a more traditional approach to handling their business and selling them entirely.

Some are bought by large corporations or private equity firms that liquidate assets and keep customer lists.

Employees are not guaranteed their jobs under new ownership, and small community businesses are folded into large conglomerates.

The Benefits of a Business Cooperative

However, a worker-owned cooperative might be a beneficial alternative to a traditional sale of a business. Few business owners consider their options when it comes to worker-owned cooperatives, perhaps because they are unaware of how it works and its many benefits.

Employee-owned small worker co-ops have approximately four to five percent higher productivity levels and increase their profits by as much as 14 percent. With employee ownership, they have less staff turnover and a decreased chance of business closure. They also have increased stability and more growth potential.

Co-ops can generally pay higher wages and give employees much more control than a traditional business model. They also receive significant tax benefits as incorporated cooperatives are not usually taxed on surplus earnings refunded to members.

In a co-op, employees have already shown a commitment to the company and the community. They get the benefit of keeping their jobs, and business owners wanting to sell their business get a better deal.

What is a Business Cooperative?

Business cooperatives are usually formed by people who work or shop there, use its services, or produce goods. They are common in the healthcare, art, agriculture, retail, and restaurant industries.

Cooperatives are owned by members and governed democratically.

They use an equitable patronage system to distribute profits. Most co-ops abide by seven international cooperative principles:

  1. Voluntary membership
  2. Democratic member control
  3. Member economic participation
  4. Autonomy and independence
  5. Education, training, and information
  6. Cooperation among cooperatives
  7. Concern for the community

Cooperative models typically require between at least 20 employees to a few hundred. This range provides for employees to purchase a company share that is substantially enough to be worth it but not too expensive for the employees.

Cooperatives typically share several common operational characteristics. Each member has the same ownership and control, and they play a functional role in everyday business operations.

The business services are predominantly used by its members who also receive economic advantages based on their patronage.

However, members are not legally responsible for the cooperative’s obligations or debts. The transfer of ownership interest is restricted or barred, and there are stringent restrictions to return on capital investments.

Forming and Maintaining a Successful Colorado Cooperative

Colorado cooperatives are usually governed by the Colorado Revised Statutes Title 7, Articles 55, 56, 58, and Article 101, Part 5. Starting a worker cooperative involves several steps that will set it up for success.

First, the interested parties will need to collect information, clarify potential workers’ and consumers’ needs, and create an organizing group. With this information, they can decide whether to start a worker cooperative.

The potential members of the cooperative should then meet to discuss their needs and vision. They will also need to coordinate how they will organize and conduct business research. At this point, they need to know if there is enough interest to start a worker co-op to move forward with research and planning. Nominating a steering committee to gather information and draft detailed plans for establishing the new co-op is the next step.

The interested parties should study the viability of the business idea, including financing options, needed equipment and facilities, potential customers, markets, and expected volume of business, estimated operating costs, and capitalization. If the feasibility study indicates that the business could be viable, they should then get commitments from all interested parties.

Next, they need to formulate and evaluate their business plan. This step includes identifying the co-op’s structure and financing. Then they can ratify their business plan and get firm commitments to the co-op and its finances. Now is the time to meet with a business lawyer and take the necessary steps to form the co-op legally, including organizing the legal papers needed for incorporation.

Once the members approve the articles of incorporation and bylaws, they can officially start the cooperative. The co-op’s management structure and positions should be selected and initiated to prepare the business to open.

Finally, they can begin operations and implement their business plan. This step also involves publicizing the co-op’s opening, planning for education and training, establishing, and maintaining positive relationships with customers and suppliers, and continuous communication about the co-op’s performance.

Colorado is home to many thriving business co-ops located in urban, suburban, and rural areas across many sectors. If you are interested in starting a worker cooperative or are selling a business and want to learn more, be sure to connect with a Colorado business law firm like Hackstaff & Snow LLC.

John Snow and Doug Griess of Hackstaff & Snow, LLC, are top Denver business attorneys with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, John Snow and Doug Griess offer an in-depth understanding and knowledge of general corporate rules and regulations and are a trusted resource for business owners throughout Colorado.