User:Alexdaviesmorris/Worker cooperative

In a world of predominately traditional business, Worker Cooperatives have developed a wide variety of financing methods over time in order to survive and thrive in the market. Cooperative businesses often employ multiple forms of financing together as each technique tends to be unsustainable on its own.

Internal Capital Accounts/Member Buy-Ins
Internal Capital Accounts (ICA's), also known as Member Buy-Ins, are shares of capital distributed equally and exclusively to workers. They act as a mandated buy-in loan to the cooperative that generates financial return over time in the form of interest. ICA's are typically equal to a specific term's wages, like an annual salary, that is given a fixed rate of return that is not directly tied to the cooperative's losses or profits.

Cooperatives in low-income communities often raise donations to assist workers in meeting the ICA Buy-In requirement, as in the case of the Mariposa Food Coop. This method of financing is one of the most prominent due to its high rates of success in maintaining financial stability for cooperatives. When the cooperative allocates profits, a significant portion are paid back to the workers through these capital accounts. The Mondragon Corporation utilizes a 10-20-70 system, in which 10% of profits are placed into community development and infrastructure programs, 20% back into corporate reserves, and 70% into individual capital accounts.

In certain cases, like the Mumbai Tiffin Box Supplier's Association in India, Member Buy-In's allow cooperatives to become completely financially independent from other sources of investment.

Committed Capital/Preferred Stock
Committed Capital, also known as Preferred Stock, are shares of capital offered to external accredited investors that are not a part of the cooperative. In order to maintain workers' ownership over the firm's decisions, these external investors have limited to no voting rights within the cooperative. Committed Capital often have non-guaranteed rates of return. However, Equal Exchange, a U.S.-based worker cooperative, offers preferred stock that still ensures at least a 5% return rate even during periods of economic recession.

Because the communal ownership model of cooperatives makes it difficult for investors to determine the credit and reliability of their investments, they often rely on close analysis of the structure, management, and experience of each cooperative in order to decide in which one to acquire stock.

State Financing
In many countries, the state provides loans or direct funding for worker cooperatives' production, community programs, and investments. Government funding is especially important in assisting newly developing cooperatives in securing finances for the initial stages of business.

In Spain, the Basque Government assists in financing cooperatives within the Mondragon Corporation and for many of Mondragon's education and healthcare programs. Additionally, the Basque Government financially assists Mondragon in acquiring declining capitalist businesses and transitioning them into worker cooperatives.

The Indian government provides financing, often in the form of loans, to new cooperatives. The government of Kerala and the Khadi Development and Village Industries Commission in India often provide initial loans for cooperatives in order to help them eventually transition into relying primarily on Internal Capital Accounts.

In 1978, the UK government set up the National Cooperative Development Agency and in subsequent years common ownership was promoted as a model to create employment, leading approximately 100 local authorities to establish cooperative development agencies. The Industrial Common Ownership Act authorized the Secretary of State for Industry to make grants and loans to organizations that assisted common ownership and cooperative enterprises. Grants were made to the Industrial Common Ownership Movement and the Scottish Co-operatives Development Committee, while loans were administered through Common Ownership Finance Ltd. However, this section was repealed in 2004.

The Italian Government, through the 1985 Marcora Act, has established a financing fund for worker cooperatives, especially for traditional businesses that require extra financial assistance while transitioning into cooperatives. Often, this state investment is equivalent to three times the collective internal capital account investment from workers.

Canadian worker cooperatives also rely on government funding to finance their early development. State sources of finance, which often come in the form of grants, include the Quebec Local Development Centre, the Co-op Development Initiative, and the Young Entrepreneurs program.

Financing via Traditional Business Transitions
When the owner of a traditional business decides to resign and transition the ownership of the firm into a workers' cooperative, they often provide initial financial investment. However, this typically is not a sustainable form of capital investment and cooperatives often use it to begin business and then transition to depend on other forms of finance. Examples of this method of financing include Select Machines, Inc., Metis Construction, A Slice of New York, and Rock City Roasters.

The transition process often takes several years and is executed in 5 stages. First, the selling owners must evaluate if a transition is an appropriate step for the business and must consult with advisors and employees regarding new leadership changes. Second, the selling owner must employ specialists to determine the legal and financial logistics of the transition. Third, a transition group or the selling owner must organize the new managerial structure, business practices, and ownership policies. Fourth, legal contracts are signed to establish the new management while methods of finance are drawn upon to jumpstart the newfound cooperative. Fifth, an adjustment period occurs in which training is provided for workers regarding new business policies.

External Finance Firm Investment
Most finance firms that specialize in providing capital for worker cooperatives are Cooperative Funds and Community Development Financial Institutions (CDFI's). CDFI's often do not supply the majority of finance for cooperatives, but act as collateral for other forms of investment and/or as support for another form of finance. Additionally, many cooperatives utilize external finance for improvements to their physical capital in order to improve productivity. Several U.S. CDFIs include the Cooperative Fund of New England, the Common Wealth Revolving Loan Fund, the Shared Capital Cooperative of Minneapolis, and Capital Impact Partners.

In France, worker cooperatives contribute funds to the SOCODEN (Société coopérative de développement et d’entraide), a cooperative financial institution that finances developing and struggling cooperatives. Additionally, this fund provides collateral for other sources of funding and subsidies for interests on loans for these cooperatives.

Direct Public Offerings
Direct Public Offerings (DPO's) are loans or donations generated either socially by communities or individually by both accredited and non-accredited investors. The voting rights that this investment produces for the community or investor varies depending on the cooperative and offering type. This form of financing is especially popular with cooperatives that provide services to local communities. One of the primary attributes of DPO's that attract cooperatives is that by advertising investment opportunities to local communities, the firm not only generates financial capital but it also employs an efficient method of advertising that keeps the community engaged in the firm's products and success. For cooperatives undergoing an ownership transition, DPO's are often a source of financial support to the initial loan of the retiring owner. Examples of firms that have utilized Direct Public Offerings for financial support are Real Pickles and the CERO Cooperative.

Peer Financing
Many worker cooperatives utilize surplus profits to provide loans or establish offering funds in order to support other developing or struggling cooperatives. These funds are also used as collateral for other forms of finance by cooperatives in need. Examples of Peer Financing in the U.S. include the Evergreen Cooperatives, the Share Capital Cooperative, and the Valley Alliance of Worker Cooperatives.

In Italy, large cooperative federations utilize excess profits to develop peer financing funds that not only financially assist other cooperatives, but are also used for workers' training programs and for research into cooperatives.

France's worker cooperatives, otherwise known as Société coopérative et participative (SCOPs), are required to allocate a small portion of profits to a financial fund for other French worker cooperatives in cooperative federations.