Transferring your business to your employees

Are you considering selling your business? This may be one of the most important decisions in your professional life. All the more reason not to miss an obvious solution: the purchase of your business by those who, sometimes for years, have helped you expand it.

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  • Techni Conseil
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Pas d'actus désolé.

Why transfer your business to your employees

Here, transferors express the reasons why an increasing number of managers are selling their businesses to their employees. These are as many arguments that will help you consider this solution in full knowledge of the facts.

  • You ensure that your business is sustainable
    • You keep the same team: there is no loss of expertise.
    • A smooth transition for the clients and suppliers that keep the same contacts.
    • Your employees taking over the business will also be very motivated successors to continue your adventure.
    • A participative management style oriented towards wise decision-making (no excesses, no waste, etc.).
    • A compulsory portion of the net income is allocated to the reserves: a useful cushion in times of crisis and a guarantee of financial soundness.
    • A business that is transferred to its employees reduces its risk of dying in five years by 20 to 50 %. (Oséo study, France)
  • You protect the jobs that you have created
    • No risk of splitting up your activities, of “piecemeal sale” and therefore, related redundancies.
    • No relocation risks: the working tool belongs to the worker-members.
  • There is no need to search for buyers
    • You know them better than anyone else.
    • They know the business inside out and are directly operational.
    • There are many worker-members, which implies more financial means than with a single buyer (employee).
    • You save time searching for buyers: they are right there.
    • You protect the strategic and confidential elements of the business.
  • You can ensure a smooth transition
    • You can provide support to your employees taking over the business; they will probably need it.
    • You know the type of support needed by each employee taking over the business: management, sales, technical advice, etc.
    • For the transfer, the business is converted directly into a worker cooperative; it keeps its trading company status (public or private limited company), identity and history.
    • The business retains its usual partners: banks, advisers and suppliers.
  • You can pursue an activity in the business
    • Because you can now (finally) focus on what really motivates you the most: R&D, skills transfer, sales, etc.
    • Because you can remain active longer or make up for the missing months required to qualify for a full pension.
  • You give even more meaning to your action
    • A solution that is in keeping with its time in a society in which:
      • individuals are now becoming increasingly more pertinent;
      • solidarity is being increasingly considered an asset;
      • individualism is increasingly showing its limits with each passing day.
    • A decision that goes way beyond a simple financial operation.
    • The reaffirmation of the values that you have defended, undoubtedly, for a long time.
    • Transferring an asset to future generations of employees of the business.
See all the reasons

The conditions for a successful transfer

There are only four of them, but if they are all met, your project has a strong chance of being successful.

  • Building trust with your employees (and vice versa)
    • Is the relationship between you and your employees conflictual?
    • Does the idea of employees being part of the decision-making process and sharing in the business profits seem strange to you?
    • Do you consider that the employees will never have all the skills and energy to continue the work that you have accomplished?

    Then, it is best to forget about transferring your business into a worker cooperative. In fact, transferring your business into a worker cooperative rests on a very basic idea: the best persons to take over from you are, logically, those who have helped you accumulate your assets.

    You both know each other very well; over time, trust has developed between you and you believe that they have also contributed to your success. This will never be the case with a third party.

  • Identifying the man or woman who could succeed you

    In a worker cooperative, it does not mean that because the worker-members will become the owners of the business, that it does not need a leader.

    Like all businesses, someone has to make the decisions and bear responsibility for them.

    However, do not look for someone who resembles you, who would have all the qualities that have made you the entrepreneur that you have become.

    All you need is an employee, undoubtedly, one who is already a senior-level manager and has demonstrated to you, as well as the other employees that they possess great listening and teaching skills and a certain authority, for the principles behind the worker cooperative to do the rest.

    For the chosen man or woman who will accept to take up the gauntlet, wherever they fall short, the participative management of the worker cooperative and the collective desire to succeed will compensate for this. And do not forget the training (management, finance, cooperative management, etc.) that can be provided, if necessary.

  • Not being solely satisfied with just a financial operation

    Are you only interested in the value of your business? In this case, perhaps transferring the business into a worker cooperative is not fully meant for you. Not because you would not obtain a fair selling price. But, by limiting the transfer to a mere financial transaction, you miss other difficult-to-quantify advantages that will bring you security and satisfaction, which should be taken into account. (See “Why transfer your business to your employees”)

  • Being prepared to dedicate the time to make the operation a success
    • It takes six months to transfer ownership of a business and convert it into a worker cooperative in four stages (Link to “The four steps in transferring your business”).
    • This time is dedicated to developing all the managerial, legal, financial and human conditions to ensure the success of the converted business.
    • This is about the time that you would need to seek and find a third-party buyer that, perhaps, will offer you the right price, but that you do not know.

    It is up to you to compare these two investments in terms of time.

    • Moreover, in the case of transferring the business into a worker cooperative, you can decide, with the new employees managing the business, on a transition period (Link to “Why transfer your business to your employees”; reason § 6) during which you will be able to support the business on the next leg of its adventure.
See all the conditions

Your questions. The answers.

On the transfer itself

  • Is this mode of transfer a real sale?
    • Transferring a business into a worker cooperative is neither a donation nor a gift to the employees.
    • You sell your business as you do with the other legal options.
    • Obviously, there is a humanist or social dimension to your decision to transfer the business in to a worker cooperative; however, this is not a selfless act!
  • What about the price and the risk?
    • The transaction amount takes into account the same objective data as in the other types of sale.
    • In addition to this fair price, this is a reliable type of operation. There is little or no risk of the transaction being terminated for hidden? defects; those taking over the business know everything about it: its clientele, the production tool, the quality of the employees, the state of the finances, etc.
  • Will the employees have the means to buy the business? >> It is a fact that the employees may not have huge sums of capital, but
    • there can be many of them and together, they can gather the required funds;
    • if the project is considered viable, a worker network cooperative can provide a decisive contribution in the form of financial support;
    • banks often view the worker cooperative solution as a healthy approach and a guarantee of business sustainability, and may grant additional loans more readily.
  • Will all the employees be on board?
    • Not all employees need to become members to convert your business into a worker cooperative.
    • It only takes a team that is eager to take the destiny of the business in their hands and who can unite behind a leader.
    • If the other employees do not wish to invest in the new business, they will be offered the possibility of becoming members. In fact, they become members under two conditions:
      • if they, themselves, wish to,
      • if it is agreed on by the worker-members during the general meetings.

About the future company as a worker cooperative

  • Very few people know about the worker cooperative model, who will help me?
    • It is a fact that business transfer experts, or even chartered accountant themselves know very little about worker cooperatives.
    • Le réseau des Scop qui accompagne déjà plus de 2 000 Scop dans toute la France saura vous accompagner et, si nécessaire, vous aiguiller vers les experts qualifiés.
  • Will the future managing director be the most competent person?
    • You know your employees very well. You are best placed to judge who will be able to take over the reins of your business.
    • The employees also know each other’s skills better than the external shareholders. They will know who to elect as managing director.
    • The future of their company and their jobs are in their hands; their decision will be carefully considered and, no doubt, they will quickly come to an agreement on who will take over the reins from you.
  • Will all the employees not want to become bosses?
    • The company democracy that prevails in a worker cooperative is neither self-governance nor constantly appealing to employees
    • Within the executive committee or the board of directors, the managing directors, take unilateral management decisions that they consider must be taken in the interest of the company, which now belongs to the employees
    • Only strategic decisions, starting with the election of the managing directors, are taken, based on the one worker-member, one vote principle, by all worker-members during general meetings
    • Management fully assumes its role on a day-to-day basis. The managing director’s teaching skills, their ability to listen, as well as staff involvement make decision-making easier.
  • Is a worker cooperative not designed for struggling businesses, to begin with?
    • In France, of the roughly 200 worker cooperatives created each year, only 5% are from struggling businesses seeking a fresh start.
    • The overwhelming majority of worker cooperatives created are new businesses or healthy businesses that have been converted into worker cooperatives following a sale by the founding managing director.
    • Admittedly, the media put a spotlight on many worker cooperative projects that are linked to failed business; however, these are not all viable!
  • Is it not easy to dismiss an elected managing director?
    • Managing directors are elected for a four-year term in a private limited company and six years in a public limited company in France. This way of nomination avoids abuse of power and sanctions poor management.
    • But, far from being fragile, their position is all the more legitimate as it is the employees themselves who choose their managing director.
    • Social relations between employees and managing directors are, by nature, more balanced in worker cooperatives.
    • In practice, French managing directors are rarely dismissed, and they hold office for around twenty years, on average. This is roughly the same as in a traditional company.
    • Also, in a worker cooperative, leadership is, first of all, a human factor.
  • Is a worker cooperative not more appropriate for the construction and public works or industry sector?
    • Even though these “historical” sectors are still very well represented in France, 55% of worker cooperatives now operate in the services sector.
    • This ratio has been increasing steadily for 10 years, and the gap tends to be closing with the ratio observed in the French economy.
  • Is profitability a real concern in a worker cooperative?
    • As in all industrial or commercial enterprise, profitability is a requirement in the public or private limited companies that are worker cooperatives.
    • Also, because profits are distributed fairly, this is not viewed as an abstract concept, reserved only for shareholders, but as compensation for sound managements and everyone’s labour.
See all the answers

Employees’ perspectives

As an employee, you can become a cooperative entrepreneur by collectively taking over your company with your colleagues. There are many different reasons why you should go for it:

      • Your company’s owner is close to retiring.

      • The majority shareholders of your company are withdrawing.

      • Your company is without a buyer, despite faithful partners, customers and a solid cash flow.

      • Or on the contrary, your company experiences economic difficulties but you’re convinced of its potential.

      • Or else, you and your colleagues are interested in working in a collective and democratically controlled company.

      • You and your colleagues want to secure sustainable local jobs for local workers.

The decisive role of the chartered accountants

Transferring a business to its employees cannot succeed without the action of the chartered accountant who, as an adviser to the business, is well placed to support the strategic decision. You certainly know about the status of a worker cooperative, but did you know that it allows healthy companies to be taken over by their employees in many European countries? Here are the answers to your first questions:

  • What is your client's main interest?

    To have a smooth transition.

    • Because transferors can support the employees taking over the business. They know the type of support needed by each employee taking over the business: management, sales, technical advice, etc.
    • For the transfer, the business is converted directly into a worker cooperative; it keeps its trading company status (public limited company, private limited company, or a simplified joint stock company), identity and history. No new legal entity is created.
    • The business retains its usual partners: banks, advisers and suppliers.
    • In France a transitional worker cooperative is a new status that makes it easier for healthy SMEs to be transferred to their employees because it allows the worker-members, who, continue to hold majority voting rights throughout the process (seven-year time frame), to eventually become majority shareholders in their work tool.
  • What is the first condition for a successful operation?

    Anticipation. For this purpose, the French Law on the Social and Solidarity Economy, which was adopted in July 2014, has established a right for employees to be given advance notice with regard to takeover possibilities in businesses with fewer than 250 employees.

    Regardless of the buyer, a business transfer takes time and, therefore, must be anticipated as much as possible. Discussion between the transferor and the employees as early before the transfer as possible guarantees a successful outcome.

  • Will my client obtain an attractive price?
    • The transaction amount takes into account the same objective data as in the other types of sale.
    • In addition to this fair price, this is a reliable type of operation: those taking over the business know everything about it (the clientele, production tool, quality of the employees, etc.).
See all the answers

Testimonials from chartered accountants

Two transfers with testimonial from a chartered accountant

What’s a worker cooperative?

A worker cooperative is a cooperative majority-owned by its workers, voting rights being exercised on a one-member one-vote basis.

Members of worker cooperatives are mainly employees of the company, who thus jointly decide:

      • on the main entrepreneurial decisions,

      • on how to share the profits in order to provide a fair remuneration and consolidate the enterprise and its jobs over the long term by building reserves.

Furthermore, members elect and appoint their managers.

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