I worked with some consultants who did this sort of thing for companies, and their main spiel was...
Sometimes a company’s owners have no one to pass their ownership down to (not having kids or their kids not wanting to take on the family business, etc). So they either sell the business off or do layoffs and liquidate and move on.
There have been instances where companies that employed a good amount of people in a town shut down due to this.
Making a company employee-owned is one way to keep it alive and operational. Sometimes it’s a better option than selling the ownership to a third party.
> Windings is a leader in the design, test, manufacture and support of custom electric motors, generators and related components including rotors, stators, lamination stacks and insulation systems.
> Windings business structure was converted to an Employee Stock Ownership Plan (ESOP) in 1998 and we have been 100% employee owned since 2008.
An ESOP is used to allow the owners to sell their stock to employees. The owners benefit by getting a tax break, and the employees benefit because they're allowed to pay for the stock out of the future earnings of the company rather than needing to pay out of pocket. Most co-ops are formed using ESOPs, but not every company that does an ESOP becomes a co-op. For example, a company could just sell 20% of its stock to its employees but still remain largely owner controlled.
Even if you start a company knowing you want it to be a co-op, the best practice is currently just make it a C Corp and keep it that way until it's profitable and stable and no longer growing quickly. Unfortunately there currently aren't really good ways to finance co-ops, so creating a traditional company and then later converting it via an ESOP seems to be the recommended practice. I think there are some people working on better alternatives, but I don't follow the space super closely.
I work for a ~80 employee company, the two founders probably want to retire in 5-10 years, and this is an important topic for us.
What about the monetary value of the company, do the employees buy it (probably too expensive, cheaper for the employees to shut it down and form a new company with the same people) or is it usual for the founders to give away the companies? Do they just keep a good percentage of the shares to receive dividends?
> What about the monetary value of the company, do the employees buy it (probably too expensive, cheaper for the employees to shut it down and form a new company with the same people) or is it usual for the founders to give away the companies?
It’s not unusual for employees to not have enough money to buy shares outright, which is usually why business owners don’t even consider this type of arrangement. However the good thing is that these arrangements are usually structured in such a manner that the employees gain ownership via transactions from future earnings. So founders aren’t giving anything away.
In Italy the gov't has policies for this kind of situation. The Labour party is pushing for the same called 'Right to Own'.
Personally, I think the employees have the right to get ownership. Nothing gets produced without human labour. They may have ownership of the factory (by some divine reason), but nothing gets produced without labour (including management labour).
Sometimes a company’s owners have no one to pass their ownership down to (not having kids or their kids not wanting to take on the family business, etc). So they either sell the business off or do layoffs and liquidate and move on.
There have been instances where companies that employed a good amount of people in a town shut down due to this.
Making a company employee-owned is one way to keep it alive and operational. Sometimes it’s a better option than selling the ownership to a third party.
But then again that was just their sales pitch.