Corporations Employee Cooperative Law and Legal Definition

An employee cooperative is a cooperative in which the company’s employees rather than customers are the patrons. Many state statutes dealing with employee cooperatives were originally enacted as enabling statutes to permit the organization of farmer cooperatives.

An employee cooperative may be used as a plan for business succession. If an owner wants to retire or cash out of a business but would like to see the company continue with his or her vision or if the most logical and desirable market for the company is some or all of the owner’s closest business associates (the employees), the owner may consider some form of employee acquisition of the company. If the employees are somewhat in agreement to make a collective acquisition of the company, a cooperative may be a better choice than a more conventional corporate acquisition and ownership structure. Distribution of corporate profits to employees as patronage refunds may be a preferred and more tax-efficient method than payment of dividends to shareholders. Employees are more likely to act in the best interest of the company and themselves as employees than a passive investor.