How to turn a corporation into a coop?

November 9, 2007 8:11 AM

How to turn a corporation into a coop?

I am the sole owner of a (very) small business (~$200K in annual sales). I want to explore selling the company to some or all of it's (400) customers. Are there any guides for this? Successful examples?

posted by libertaduno to work & money (9 comments total)

I don't know much about consumer coops, but I saw a presentation last week by a consultant from the ICA Group -- a non-profit that works with worker-owned coops. It might be worth taking a look around their website or even giving them a call -- they might be able to refer you to a consumer coop expert.
posted by rdn at 8:48 AM on November 9, 2007

As with rdn - I don't know much about coops, but I was pleasantly surprised recently when I bought something at REI about 6 months after buying something else.

When I got to the checkout, I actually ended up with about 20 dollars discount from my purchase...I signed up previously and this was my dividend.

I would imagine that it wouldn't be too hard to set up this kind of process for your customers, making a % of all purchases available as a dividend, redeemable against their future purchases every 6 or 12 months. This seems like a halfway step, without devolving everything?
posted by mattr at 8:55 AM on November 9, 2007

I'm a co-op developer in Ontario, Canada - I get a lot of requests like this. Each jurisdiction is different, with legislation and what-not, but I'd be happy to point you at some of the resources I have if I knew where you were located. Or provide some of my own if you were based in Canada, or even better, Ontario. I'm currently working on a business succession project with our national association that may have some resources.

I could also provide some general advice - the big key with this is around transitioning to a member owner model and mentality, and dealing with the giving up of control over the business is sometimes a challenging part of the process for owners. My email is in my profile if you want to contact me directly to discuss in more detail.
posted by Cyrie at 9:35 AM on November 9, 2007 [1 favorite]

My advice is to consult a lawyer. I'm guessing it will probably go something like this:

1) Create co-op.
2) Corporation sells all assets to co-op at a price that will exactly pay off its remaining creditors.
3) Corporation pays off all creditors.
4) Corporation shuts down.

The corp probably has some long-term liabilities (e.g. a lease) that the co-op will need to assume as part of the transaction, as well. It might be simpler to go to the landlord and see if he'll simply sign a new lease with the co-op and let the corp out of its lease. He will probably be willing to, as long as he continues to receive rent, since the corp will be a poor target for a suit without assets.
posted by kindall at 9:39 AM on November 9, 2007

Kindall is right about the basic legal process to follow, since co-ops are really just another type of business corporation from a legal perspective, but making a success of this will require the services of someone experienced with co-op development. Also, getting a lawyer that knows the relevant legislation in your jurisdiction is essential - especially if there is particular legislation that applies to co-ops vs. private business (as there is in Ontario). There are a lot of cases where a lawyer that doesn't know the nuances of the co-op legislation will just muck up the share structure or other start-up docs because they treat it like a company owned by shareholders, when the value proposition, and matching the governance with the business in a member-owned corporation requires a different viewpoint. Not understanding how to operationalize the concept of one-member, one-vote, is enough to often to create a losing situation, financially.

In most cases that I've seen with worker buy-out or transitioning to a co-operative model, success is greater when you have a few key champions on the other side of the table, so to speak - so in this case, the customers. That will help you jointly develop the the value and setup the co-op in a way that works for everyone. Being solely driven by management or current ownership has a much lower chance of success, since the highest proportion of the members are not engaged in the process.
posted by Cyrie at 9:46 AM on November 9, 2007

Thanks cyrie, I will contact you.

I actually want to hand off control, but would love to remain a part of the business.

The corp actually only has one lease and it's for a year, and it will still be needed so nothing serious.

Thanks all!
posted by libertaduno at 9:48 AM on November 9, 2007

It's close to what Kindall says.

What I know is mostly from looking at going the other way, from a co-op to a regular corporation (an avenue that my co-op ultimately decided not to pursue). What you need to do is revise your articles of incorporation, done with a lawyer and a vote from all of your current shareholders. Then you can maintain all your current assets and debts, and you'll have a share disbursement scheme built into your bylaws.
posted by klangklangston at 9:59 AM on November 9, 2007

If you'd like to contact me, I can put you in touch with co-op lawyers.
posted by klangklangston at 10:00 AM on November 9, 2007

Check out the National Center for Employee Ownership. The website is a bit hard to navigate, but I talked to someone there who was really helpful.
posted by salvia at 10:43 AM on November 9, 2007