My husband and I have an LLC for our work doing small engine repair. Occasionally our son helps a little, but otherwise it’s just us.
My husband has a close friend and former co-worker who is losing their job, and we are very busy and could use help, but we are deeply morally opposed to profiting from someone else’s labor. I was thinking that perhaps we could subcontract stuff to her for a little bit, and if things are working out, then we figure out how to restructure the business.*
There is a restaurant in a nearby town that is worker-owned, but I haven’t asked there for advice partly because their structure is byzantine, and idk if that comparison is apples-to-oranges because of the wildly different industries.
*
I understand that sharing ownership means sharing control. I would have qualms about that with pretty much every person I know because most people aren’t as obsessed with details and informed decision-making etc as I am; I am not concerned about that with this friend, because she has the same flavor of AuDHD as I do. I was undiagnosed when we met her, and our striking similarities in personalities and behaviors were a huge part of the reasons for seeking diagnosis.
Also, it’s a rural area, everybody knows everybody, and she is someone with deep roots who is pretty universally loved and respected. There are few people I would trust to try to step into my life and fill in for me if I were seriously injured, but I know she would give everything as much or more care than I do. She is the best.
The process of legally converting a business to an employee-owned cooperative can vary significantly depending on what jurisdiction you’re in. There’s different criteria for creating one (some places might require more than 3 directors to create a Coop) and all sorts of statutory considerations unique to wherever you are.
If you’re serious about doing this, I would sincerely recommend reaching out for legal advice first. This is your livelihood, and you do not want to make a mistake that creates difficulty down the line. Depending on where you live, there may be a public interest organization, or business law clinic, that can provide some legal information for free. You could look up “(where you live) non profit legal assistance” and see if anything shows up.
Please never take legal advice from random people on the internet. Something like this is too specific to local laws for anyone to give you meaningful advice unless they know all the details.
Find a local lawyer and call their office. Most will give you a free consultation to begin with.
Most will give you a free consultation to begin with.
A lot of state bar associations (professional org for lawyers) will have a list of attorneys who will give you free/cheap 30 minute consultations. Googling “[my state] bar association lawyer referral” will usually get you in the right place. Here’s an example from Texas, where you can get a 30 minute consultation for no more than $20.
Some policy questions I would work out beforehand (talking to that restaurant is a good idea, and a lawyer may have ideas, too):
- How will the business be managed? Do you need 100% consensus for every decision, no matter how small? Do you elect a manager each year who has all decision making power for that year? Something in between?
- How do you bring new workers into the fold? Say you and your husband have worked at this business for 10 years. Does the new worker get a full one-third split on Day 1? Does their share increase over time? If you get a fourth worker, who you might be less sure will work out fine, how do they get from not working there at all to an equal share?
- How do you handle part-time workers or contractors? Or workers who contribute different amounts?
- What happens to a worker’s share of the business if they leave? What if they pass away?
- What happens if someone stops contributing, or contributes a lot less? This is a common problem in partnerships.
- How do you fire someone?
- How do you measure work and performance in general? Think of all the administrative and business development labor needed, not just the core product/service you’re offering.
It’s a lot to mull over, but doing that work now could save you a blowup down the line.
I’m not looking for legal advice from strangers, I’m looking for a better understanding of the jargon so I am more able to do research on my own. But thank you for your concern 😊
Occasionally our son helps a little
Jk obviously it’s good to teach children skills
Ikr! But he volunteered! It was as shocking as it was magical. 🤩
See if there is a national cooperative association in your country, I’ve received help from them in the past when starting a co-op.
Thank you, that’s a perfect place to start!
There might be information in the orbit of Richard Wolf’s work since he’s so big on co op advocacy.
@CarsAndComrades@hexbear.net, any advice?
Our very own CarsandComrades has done a few podcasts with Zac from the Automotive Free Clinic. Been a while since I’ve listened to the few episodes and I can’t remember how much they went into the “business incorporation” side of things. Unsure of the all specific differences between a for-profit worker coop and a non-profit. There will be some different accounting, book keeping and tax stuff for sure but I’m pretty ignorant of the owner/manager/board of directors (or its equivalent) differences. But it might not be a bad idea to call/email the Automotive Free Clinic and chat them up.
I think the below link is the first episode where they talk to Zac of the Automotive Free Clinic.
It wouldn’t surprise me that, assuming its just going to be the three of you, it would be easier to modify the LLC to just have another owner. Then its probably going to be a matter of figuring out how to account for them “buying in” and getting their name updated on the official documents, planning ahead for if/when an owner wants to sell their shares of the business when they don’t want to be a part of the LLC anymore.
It seems like coops tend to be required to have Boards of Directors and elections, it would make sense that the Directors can’t be the workers, but if the local community is pretty tight knit and all cool with each other this probably won’t cause problems though.
Reach out to that restaurant that’s a worker coop probably is a good idea. Maybe go visit the place a few times when its not super busy and try to chat up the front of house workers to get a feel for the place before trying to contact the “business manager” side of things.
You should be able to contact local chamber of commerce or local government types to see if they can give you some direction in organizing the business as a coop. If there’s a university nearby or a agricultural extension agency (may or may not be associated with the university) they might have some community outreach orgs/programs that can try to help guide you and assist in research. For the university, you’re probably going to be looking for resources under the umbrella of “Business School” or “Business Law.” If there’s a local Farmer’s Coop, you might be able to find somebody to talk about organizing a coop as well.
I don’t know any more than what’s in that episode, but you could try contacting Zac. Although he just had a kid recently so I imagine he’s pretty busy. IIRC the AFC is some type of non-profit.
Thank you for all of these details and suggestions! This was very helpful.
I’ve worked with the Cooperative Development Institute here in the Northeast to help a bunch of farmers start/legally form coops and had good experiences. Happy to chat if it’s helpful.
This is so kind, thank you very much!! ❤️ I would love to, but first I need to spend some time looking through all the resources suggested here so I can make wise use of whatever time you can spare for me.
Calculate a wage high enough so the business operates at a break-even point
Pay isn’t ownership but if you want to be sure that people are property paid then a profit sharing bonus is much better than simply calculating a wage increase because profit sharing accounts for the yearly variance in business performance.
Wages are much harder to adjust in most places and can’t be pinned to a variable factor like business performance.
that’s the opposite of the advice OP is asking about
Death to America
But it avoids buerocratic hassle
Not everyone wants to deal with the bullshit associated with ownership. Owning a business is not the same as doing the labour that makes the business money - there’s a bunch of other crap like dealing with taxes, licensing, insurance, marketing, and liability. It’s great that OP is willing to offer an ownership stake but not everyone wants it. In one small business I’m aware of, I know an offer like this was made and the person/employee declined because they didn’t want all the additional stress of work required for the business to legally exist and function and instead wanted to stay on the tools so to speak. They found it was better for their health/mental health limitations. Now that person is well paid and has a senior role, but isn’t an owner.
There is a non trivial amount of labor that goes along with owning a business that is necessary for a business to function. It is not so much labour that small business tyrants should be exploiting labour like they do, but it is work and it is almost always different in nature than the type of work that the business does that actually makes revenue. Paying someone super well and respecting their opinion for decision making purposes without an ownership stake is a respectful option for OP.
ok but presumably OP thought about all this before asking “how do i make my business worker owned”. otherwise they’d be asking “should i make my business worker owned”, which is a completely different question
Death to America
This and this might be good places to start.
There’s also a newer org that provides revolving funding and other assistance for workers’ cooperatives, called Seed Commons.
Those are wonderful, and so are you ❤️ thank you!!
It’s not very hard, you just need to refile your LLC into a partnership LLC and then write up an operating agreement. The only real difference will come during tax season, as you will only be able to split deductions based on ownership percentage.
Tbh, it doesn’t really matter whether you are legally “worker-owned”. The operating agreement dictates responsibility and reward regardless of whether they own 33% or 5%, so long as it’s not a publicly traded company.
Your biggest concern is most likely going to be the reduction in tax offsetting for whoever is investing in the LLC, ie paying for items associated with the business with money not originating from the business itself.
“Worker owned” businesses are mostly a legal fiction in the US, and are mostly dependent on operating agreements, or they are non-profits. The tax system here just isn’t set up to accommodate equitable organizations that are more than just a handful of people.
