Succession planning: could a cooperative be the answer?

One of the most difficult barriers to an employee buyout is the challenge of raising the capital necessary to buy a business as a going concern. How then might a group of workers raise the capital needed to buy a substantial business?

To begin with, they would raise just 60% of the agreed value of the business. The Cooperative Companies Act (1996) in New Zealand allows a cooperative company to have up to 40% of voting shares owned by non-transacting shareholders. A cooperative in which the sole investor shareholder is the original owner with 40% of the shares would be an excellent vehicle to facilitate a succession process. 

Sometimes referred to as an employee buyout, the staff of the business and the retiring owner would negotiate an agreement under which a newly-formed cooperative purchases the business over a period of time. With the workers owning 60% of the shares of the cooperative and the former owner owning 40%, employees will receive wages and a dividend formula will be agreed for the investor shares. The composition of the board will also be agreed.

Read the full article at Co-op Water Cooler

 

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