What Is a Workers Cooperative?

Many companies have a singular owner and an undemocratic power structure. Typically, not all employees have an equal say in organizational decisions. However, there is another system known as a workers cooperative that’s well worth exploring.

What Is a Workers Cooperative?

A workers cooperative is when the employees themselves own and manage the business. Therefore, decisions are made democratically, meaning everyone has a vote. Most worker cooperatives create a set of rules known as bylaws that everyone must follow.

Some may even assemble a board of directors to make smaller decisions, which can save time. Another difference with these organizations is that they are less driven by profit.

Benefits of Workers Cooperatives

With employees having greater control of the company, there are some advantages. Here are the benefits of forming a workers cooperative.

1. It Reduces Inequality

Creating an employee-operated system allows people from diverse backgrounds to become managers. Often, worker mobility is limited based on economic and social factors. For example, only 3.2% of black people occupy senior leadership roles. A workers cooperative can also preserve smaller businesses if an owner retires.

2. It Can Build Wealth for the Community

Since the profits don’t go to a limited number of investors or board members, the money is given to many individuals. Most of these workers are part of the local community, so they invest the money back into the economy. The employees may even feel accountable to their community, creating more consumer-focused products.

3. It Produces Quality Jobs

Employees make meaningful contributions to the company and benefit from its success. Many positions tend to be long-term and offer extensive training. Working as a team, each member can learn business management skills.

Another benefit of the cooperative model is that the employees get paid better. In 2020, CEOs of the top firms in the U.S. made about 351 times more than the typical worker. Cooperatives help close this wealth and opportunity gap.

4. It Can Make a Positive Impact on Underserved Populations

With the focus less squarely on making a profit, workers can address societal issues. Many corporations aim to improve low-wage jobs and build wealth in the communities. One example is the Restaurant Opportunities Center of Michigan, which supports business planning for those in the food sector.

5. It Increases the Company’s Productivity

When members feel like their voice is represented, they are more likely to be invested in the company. Feeling more connected can increase productivity and reduce the turnover rate. Plus, with multiple opinions, decisions can benefit the whole company.

With a more focused team, sales can grow and the organization will last longer. In fact, many co-ops survive their first 6-10 years at a 7% higher rate than a traditional business.

How to Start and Run a Worker Co-op

While workers cooperatives provide employee opportunities, they do require some planning. Here are the steps to starting a workers co-op.

1. Gather a Group

The first step is assembling a group of like-minded people with the right skills. Then start deciding what the goal of the business is. How can it bring value to the community? Conduct research to figure out consumer needs within your local area.

2. Figure Out a Business Plan

Once you have a clear objective, you need to determine how you will address financial matters. It’s essential to perform market research. It can help you decide how much of the product you can sell and how much you will profit. Also, conduct a feasibility analysis, which assesses the practicality of your proposed plan.

Another consideration is the working conditions for members, including the pay rate. You also need to determine whether everyone will vote on each decision or if you will select a representative group.

Also, consider an employee stock ownership plan, which gives employees shares within the company. Having this plan can encourage a greater sense of collaboration among the team.

3. Register and Obtain Any Required Licenses

Be sure to register with your state and local revenue agencies. By registering, you’ll obtain either a tax ID number or a permit. In addition, you will want to file your business name with your state department.

You will then need to obtain any required business licenses. Check your state’s department website for specific criteria.

4. Gain Necessary Finances and Insurance

To keep up with daily operations, it’s important to receive capital. Getting a loan from the back can sometimes be tricky. However, some resources, such as the Cooperative Fund of New England, specifically support cooperatives.

Along with gaining funds, create a business bank account and get the proper insurance. Consider investing in professional liability and property insurance.

5. Write the Bylaws

Before launching your business, you need to write out the rules each member must follow. The document should clearly lay out the organizational structure. It can include key information, such as the board meeting process and how people get paid.

Tips for Running a Workers Cooperative

Once you are ready to launch your business, here are some tips to help you succeed:

• Know your customers.
• Take advantage of your network.
• Stay updated on your business finances.
• Be amenable and adaptable to change.
• Promote transparency within the team.
• Hold each member accountable.

The New Workplace Model

So, now you know the answer to the question, “What is a workers cooperative?” They can provide greater growth opportunities and even benefit the community. It takes careful planning to start and run a worker co-op, but many working-class individuals have already begun discovering the many potential advantages of membership.

By Ginger Abbot

Ginger Abbot is the Editor-in-Chief and founder of Classrooms.com, a learning publication for college students, career professionals and educators.