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Collectively taking over a company: A solid business model

Entrepreneur’s corner | Feb 24, 2022

When someone has spent a lifetime building a company and the time comes for retirement, the desire to ensure the sustainability of the project is often very strong. Many owners have it in mind to find the perfect person to sell to: a unique individual who will be the ideal successor. However, a completely different scenario for keeping the business alive is also possible – a scenario where the entrepreneur hands the business over to a group of people. Entrepreneurial takeover within a social economy context involves the transfer of a private business to a cooperative or NPO.

A number of possible scenarios

A variety of situations can arise when a group takes over a private enterprise. One of the most natural forms is a worker cooperative – meaning that the business is taken over directly by its employees. Many managers overlook this possibility, but it is often a good option for maintaining the working environment that has been built with the people that work there, and for maintaining a strong and dynamic organizational culture. A group of employees can also take over a business gradually through a worker-shareholder cooperative (WSC).

Another scenario is that of a consumer or solidarity cooperative. This is sometimes the solution when a business plays a central role in the cohesion of a city or neighbourhood, and residents do not want to see the business close its doors. By mobilizing in groups, citizens can then form a group with enough purchasing power to take charge of the company, and become owners with owners with equal shares. 

Finally, a collective takeover may be possible when a company is purchased by various stakeholders joining together as an NPO, or by its suppliers, as a producer cooperative.

Advantages for the transferor

From a purely practical perspective, it has been proven that, on average, the survival rate among cooperatives is much higher than that for private businesses! In fact, 44.3% of coops remain in operation after six years, compared to 19.5% of other types of businesses [1]. This constitutes solid proof of the strength and durability of this entrepreneurial model.

Many transferring entrepreneurs want to see their life’s work benefit those who have contributed to its success. By selling to a collective of employees, they are transferring ownership to people who have devoted years of their lives to the business, and ensuring that they can keep their jobs.

Finally, converting a private business into a cooperative reduces the risk of it being relocated. Once a company becomes a cooperative, it is practically impossible to resell it. Due to this regional anchoring, the chances that it will remain in the area where the group that owns it resides are therefore higher and favour the retention of expertise in the region.

… and benefits for the buyers

Many new owners of private businesses who have joined together to form a cooperative or NPO never imagined that they could be collective owners of a business one day. In Québec, this approach is supported by an ecosystem of specialized funding organizations who have advantageous financing programs reserved for the social economy. The seed money that transferees must come up with is often flexible, and may vary based on the strength of the company and the role it plays in the community.

In the case of cooperatives, there may also be tax advantages for transferees, including the Régime d’investissement coopératif du Québec (RIC) and RRSP COOP. For example, if the project qualifies, the RIC offers a 125% reduction on provincial taxes for individuals who invest in the cooperative. These tax tools help to offset the cost of acquisition for those who purchase the company.

In short, collective takeovers allow groups or communities to become collective entrepreneurs, and as such, to take part in the ownership, decisions and profits of the cooperative.

Therefore, whether you are looking to sell a company that you have spent your life building or you wish to purchase a private business as part of a group forming a cooperative or NPO, this approach offers tangible advantages. In addition, it is an approach that is ideally suited to the social economy, in that it promotes collective equity and strengthens the ties between a company and its community. The goal of generating economic activity remains, but the needs of individuals affected by the company are prioritized. Tempting, isn’t it?

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This article was written in collaboration with Jean-Pascal Dumont, Provincial Collective Takeover Development Coordinator at Centre de transfert d’entreprise du Québec.

 [1] Source: Ministère de l’Économie et l’Innovation

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