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PROMOTING BUSINESS CONVERSIONS TO CO-OPERATIVES

CMC is asking that the Government of Canada encourage and enable Business Conversions to Co-operatives (BCCs) to help maintain local businesses and offer retirement-aged owners another option for their succession plans.  

BCCs are a tried-and-true solution for business succession around the world. Over 200 conversions have successfully taken place in Canada, from grocery stores and coffee shops, to shortline railway, funeral homes and newspapers. Despite this, the scenario is still not broadly known among small- and medium-sized enterprises (SMEs) owners, employees, unions, and policymakers in Canada. This is a lost opportunity for keeping potentially thousands of businesses alive in light of the SME succession crunch, all while meeting local needs. 

Context

A major challenge for Canada’s 1.2 million SMEs is the potential for large-scale closures due to the growing number of retiring owners. Succession Tsunami: Preparing for a decade of small business transitions in Canada by the Canadian Federation for Independent Business, explains that “76% of Canada’s business owners plan to exit their business within the next decade ─ meaning that over $2 trillion worth of business assets could change hands during this period.”  and “[o]nly 1 in 10 business owners (9%) have a formal business succession plan in place to ensure a smooth transition.” 

What are BCCs?

BCCs take place when private, public, or non-profit companies transition into a co-operatives. In Canada, most conversions occur as part of a succession plan whereby a retiring owner or owners sell their business to employees and they, in turn, continue to operate the enterprise as a co-operative. BCCs can also occur as a community buyout (where consumers and other community stakeholders purchase the enterprise), or a multistakeholder buyout (where employees and other community stakeholders purchase the enterprise).  

Another unique model is only typically found in Quebec – a worker-shareholder co-operative (WSC) is a partial conversion formed by employees. Employees then enter co-ownership agreements with traditional investors; sometimes WSCs are a stage in the eventual full conversion of the enterprise into a co-operative.   

In addition, it should be noted that business succession to family members has had a very low success rate. Only 30% of family businesses survive into the second generation and a mere 12% are still viable by the third generation (according to the Family Business Institute, 2016.). On the other hand, succession plans that include selling the business to employees has a comparatively high success rate, and when they also convert to co-operatives, the survival rate of the subsequent enterprise is comparatively high (Ben-Ner, 1988; Vieta et al., 2017).

Lastly, it is important to emphasize that tax rules and incentives should be created to facilitate the creation of Employee Ownership Trusts and it should be harmonized to include conversions to worker co-operatives as part of the succession plan. It should also be noted that one of the priorities of the People-Centered Economy Group is the enabling of Employee and Community-Based Ownership Succession and Buyouts, directly correlating with this public policy priority.   

Next Steps

Raising awareness for and enabling traditional business conversions to co-operatives would offer an option to retirement-aged owners who do not have a succession plan and help maintain local businesses threatened by financial hardship. Enabling conversions would safeguard businesses, jobs and keep communities resilient. 

Learn More

Co-operatives are sustainable and viable businesses co-owned by interested members, rooted in capital and decision-making locally,  rather by disconnected shareholders. Canada already has more than 7,000 co-operatives and mutuals in almost every economic sector. The active conversions can be seen on the Canadian Co-operatives Map and Directory under Advanced Filters. 

CMC, along with the assistance of the various stakeholders, would be delighted to provide more information if required, including case studies. These stakeholders include:  

Canadian Worker Co-op Federation, 
Co-opConvert Project (funded by Social Sciences and Humanities Research Council), 
The Legacy Leadership Lab (L3) project at the Waterloo Institute for Social Innovation and Resilience (funded by the Employment and Social Development Canada) 
The Canadian CED Network project on  Business Recovery, Stabilization, and Succession in Atlantic Canada, funded by the Atlantic Canada Opportunities Agency