How to Start an Employee-Owned Company?

Posted by Muller Lukacs on February 11th, 2021

An employee-owned company, frequently referred to as a staff cooperative or worker cooperative, is a type of business structure in that your employees own voting shares of the company. It's not publicly traded and is managed according to the direction of the employee members. To begin an employee-owned company, you can start a brand new company, convert an existing company or sell a current company to its employees.

Establish a member of staff stock ownership plan (ESOP).

An employee-owned company is based on distributing voting shares to employees who may or may not need ultimate control of the business. YYour ESOP may indeed be situation-specific; generally, the employees become vested members by buying into the company and voting to appoint a desk of directors or appoint officers (such as a head, vice president, economic officer) to mind the company. Hire an attorney or company advisor to structure your ESOP properly.

Determine your financing sources.

If the business is new and does not exist, financing sources will come from traditional sources like banks or lending institutions. Go to the Small Business Association's website to obtain small-business loans and micro-loans (see Resources).

If the business already exists, financing for restructuring the business enterprise will come from banks or lending institutions. Besides, conversion funds will come from employee equity investments, made payable through scheduled payroll deductions or profit reinvestment. Company profits aren't reinvested into the business but are divided among new employee-owners accounts and are eventually paid out to the employee members.

Organize or reorganize the business enterprise structure.

If the business has already been established and you're converting to an employee-owned business, you may wish to restructure the business to implement policies, procedures, and management more proficiently. The structure is entirely as much as the converting company and its new employee-owners. They may wish to elect a table of directors to perform the business or choose managers by voting.

If the business is new, the employee members will undoubtedly be asked to vote on possible company structures, have a primary vote, or set up a table or managers to perform the company. Also, the employee members will need to decide how new members are accepted into the company. For example, do new members have a probationary period before becoming vested or buy into the cooperative?

Implement the ESOP.

That is going to be performed by a lawyer or tax professional. Just like structuring the business enterprise, the staff customers will have to get in and election on acknowledging the ESOP, along with any contingencies (such as paycheck deductions for staff equity financing). All through this approach, you may also determine how staff customers are paid through the ESOP. 

The benefits of employee ownership that the study has demonstrated—improved company efficiency and worker wellbeing—involve participatory tradition and are deepened by 100% worker ownership. Democratic ESOPs construct this into the business enterprise structure by integrating worker involvement in electing Approach Trustees, Trustee Committees, or the Table of Directors.