A worker-owned cooperative is a business owned and democratically governed by its employees. Each worker-owner has an equal vote in significant decisions, typically including electing the board of directors and sharing in the company’s financial success.

Profits are distributed through a system called patronage, usually based on hours worked or wages earned, not how much capital an owner has invested.

Worker co-ops are especially appealing for their accessibility and flexibility. They have relatively low startup and administrative costs compared to other forms of employee ownership, and they’re often well-suited for small to mid-sized businesses in sectors like food service, manufacturing, home care, and tech. The cooperative structure promotes long-term employee commitment, greater equity in pay and decision-making, and a strong sense of ownership culture.

There are also potential tax advantages. Under certain conditions, a seller who transitions their business to a worker cooperative may qualify for a lifetime deferral of capital gains taxes. Additionally, profits paid out as patronage can be tax-deductible for the co-op, reducing its overall tax burden.

Whether launched from the ground up or created through a transition from an existing business, worker-owned cooperatives offer a practical, values-driven path to employee ownership, with a focus on economic justice, workplace democracy, and shared prosperity.