State Policies to Strengthen Worker Cooperative Ecosystems
This resource outlines a variety of state-level policies that can support worker cooperative advocates, technical assistance providers, and worker-owners to strengthen their ecosystems across the country. The policies are grouped by category, with each item providing a summary of the policy, best practices for implementation, mistakes to avoid, and a list of exemplars/proposed legislation.
This research was prepared by Mack Schroeder and builds on work from Brayan Rosa Rodriguez and members of the Coalition for Worker Ownership and Power (COWOP).
Published: November 4, 2026
Policy Index
Policies
Summary
Provides newly converted worker cooperatives with a one-year state corporate tax exemption. Practitioners identify the first year after conversion as the most financially precarious: new governance structures must be established, worker-owners are learning to run the business, and debt service on the purchase begins immediately (Rosa Rodriguez, Policy Options memo).
Best Practices
The policy may include a clawback provision if the co-op reverts to a conventional business within a three- to five-year period and stringent eligibility criteria to ensure genuine worker cooperative conversions are being made.
Mistakes to Avoid
Practitioners should conduct an assessment of state tax relief for new businesses. Otherwise, the policy may duplicate or interact poorly with a program that already exists. Practitioners should also estimate how many firms would actually benefit from the policy. Many worker cooperatives are organized as LLCs taxed as partnerships, which owe no entity-level income tax, and cooperatives taxed as corporations can already deduct patronage dividends under federal Subchapter T, so the exemption’s value may be modest for many newly converted firms.
Existing/Proposed Policies + Exemplars
Colorado (HB25-1021) – enacted: While not a one-year exemption, Colorado allows worker-owned cooperatives to deduct up to $1 million of federal taxable income from their state taxable income each year.
Tennessee (SB1974) – proposed: Would exempt employee-owned businesses from the state business tax.
Sources/Experts Consulted
Brayan Rosa Rodriguez
Matt Licina – National Center for Employee Ownership
Tyler Rivera – Project Equity
Summary
Establishes a state- or regional- development fund used to support and expand worker cooperative ecosystems funded by a small percentage of pre-tax profits from co-ops. These funds promote longevity, increase member commitment within their co-ops, and provide a backup capital source during periods of economic recession.
The fund would be used to finance:
- new worker co-ops
- worker buyouts
- cooperatives that require assistance to avoid closure
- joint cooperative ventures (Gowan, 29).
This policy shares goals similar to those of Indivisible Reserves; however, it is used for a regional or statewide development strategy in which co-ops fund developers of their choice, depending on their processes, goals, and track record.
Best Practices
Research recommends using 10% of pre-tax profits from co-ops to finance the fund. However, this percentage can range from 3 to 30 percent depending on the organization or government entity. Additionally, supporting the creation of a fund through education, rather than legislation, can help increase member buy-in (see “Mistakes to Avoid”).
The Valley Alliance of Worker Co-operatives has utilized this method with member co-ops giving 5% of surplus to a shared fund with great success, including direct loans, supporting co-op loan funds, and providing an additional capital asset for members to utilize during financing.
Mistakes to Avoid
Without a proper umbrella organization to help implement this policy, applying this at the government level may prove difficult, since a municipal, state, or federal agency will lack the knowledge and resources to effectively redistribute the funding back into the cooperative ecosystem. VAWC has shown the ability of co-op associations to administer and utilize this model, which could be expanded to a state-wide level.
Existing/Proposed Policies + Exemplars
Italy, France, Spain, and certain jurisdictions in Canada utilize some form of a development fund.
Valley Alliance of Worker Cooperatives (VAWC)’s worker cooperative members set aside 5% of profits to the Intercooperative Development Fund.
Sources/Experts Consulted
Adam Trott – Valley Alliance of Worker Cooperatives (VAWC). Read more about their fund here and here.
Ethan Tupelo – Valley Alliance of Worker Cooperatives (VAWC).
Jason Wiener – Jason Wiener | p.c.
Rob Witherell – United Steelworkers
David Wilson and Hazel Corcoran. The Worker Co-operative Movements in Italy, Mondragon and France: Context, Success Factors and Lessons. Canadian Worker Co-operative Federation, May 2010, https://base.socioeco.org/docs/paper-corcoran-wilson.pdf.
Saoirse Gowan. Right to Own: A Policy Framework to Catalyze Worker Ownership Transitions. Democracy Collaborative, March 2026, https://static1.squarespace.com/static/668c154d4d09237bebbb257a/t/6750d4bde4b1b5687e248083/1733350591163/RightToOwn_web_sg.pdf.
Summary
Expand eligibility requirements for small-business assistance and other existing grant programs to include worker co-ops.
This may include:
- Technical assistance grants to support worker co-op conversions, including financial and organizational assistance.
- A worker-ownership transition stipend to cover wage gaps during the conversion to a cooperative business.
- Feasibility studies for conversions
- Legal assistance
- Grants to support business owners to sell their business to a worker organization and receive training on the conversion process.
- Business operations support stipend (BOSS) – A policy that leverages existing utility bill grants provided in the form of a stipend or a utility/credit for co-ops.
Best Practices
Leveraging existing programs to provide funding is often more feasible than creating new programs through legislation. For instance, advocates can push to expand eligibility criteria for small business associations to include worker cooperatives.
Additionally, since yearly state appropriations are difficult to guarantee, it’s important to ensure that programs are funded by both public financing and mixed-capital sources.
Mistakes to Avoid
Failing to identify the precise need for state grants (i.e., technical assistance for conversions, legal assistance) may lead to an underutilization of the appropriated funds.
Existing/Proposed Policies + Exemplars
Michigan’s EO Pilot Program and California’s SEED program provide direct funding to worker co-ops.
Though not directly related to employee ownership, New York State’s Wage Subsidy Program covers up to 75% of a low-income new hire’s monthly wages. Additionally, New York’s Incentives Plus Program provides a wage subsidy to organizations that hire public assistance recipients.
See and Loan Guarantee Program and Worker Ownership Revolving Loan Fund for similar policy examples.
Sources/Experts Consulted
Max Chaoulideer – Democracy at Work Institute
Michelle de Lima – DSNI
Rob Witherell – United Steelworkers
Tyler Rivera – Project Equity
Zen Trenholm – Democracy at Work Institute
Summary
Provides an opportunity for worker cooperatives to set aside a percentage of their annual surpluses to an indivisible reserve fund. The money transferred is taxed at a low rate, or a percentage of it is not taxed at all in exchange for retaining businesses in the state. Funds can never be allocated among worker cooperative members.
These funds support cooperatives’ longevity, especially during periods of economic recession; in the event that a cooperative closes, the funds are transferred to other local cooperatives or community organizations.
This policy shares similar goals to those of a Development Fund Financed by Worker Co-ops.
Best Practices
Practitioners should assess the average amount of annual surplus for worker cooperatives in their ecosystems to determine an appropriate percentage to contribute to indivisible reserves. Some experts suggest having cooperatives allocate 30% of their net profits to an indivisible reserve, as used in the Italian model (pg. 7).
Mistakes to Avoid
Practitioners should consider a policy that makes indivisible reserves optional for worker cooperatives and incentivizes them through a tax break for the organization. Implementing legislation that requires cooperatives to pay into indivisible reserves may restrict the democratic rights of cooperative members.
Existing/Proposed Policies + Exemplars
Italy, France, Spain, and certain jurisdictions in Canada use the indivisible reserve model.
- Italy exempts cooperatives from paying taxes if 30% of their annual profits are placed into an indivisible reserve.
- France, for instance, requires worker co-ops to hold a minimum of 15 percent of their capital as indivisible reserves. However, many French cooperatives contribute a higher percentage.
Sources/Experts Consulted
Adam Trott – Valley Alliance of Worker Cooperatives (VAWC)
Ethan Tupelo – Valley Alliance of Worker Cooperatives (VAWC)
David Wilson and Hazel Corcoran. The Worker Co-operative Movements in Italy, Mondragon and France: Context, Success Factors and Lessons. Canadian Worker Co-operative Federation, May 2010, https://base.socioeco.org/docs/paper-corcoran-wilson.pdf.
Indivisible Reserve – Canadian Worker Co-op Federation
Saoirse Gowan. Right to Own: A Policy Framework to Catalyze Worker Ownership Transitions. Democracy Collaborative, March 2026, https://static1.squarespace.com/static/668c154d4d09237bebbb257a/t/6750d4bde4b1b5687e248083/1733350591163/RightToOwn_web_sg.pdf.
Summary
Guarantees a portion of loans made by participating lenders to qualified worker cooperative conversions. The state’s direct cost is limited to a guarantee reserve, typically 10 to 20% of the guaranteed loan amount, and is realized only if a borrower defaults (Rosa Rodriguez 72).
Best Practices
The program may take roughly two years to become fully operational, reflecting the time required to establish program rules, capitalize the guarantee reserve, recruit participating lenders, and build practitioner awareness (Rosa Rodriguez 72). Because of this lag, advocates should seek to enact a loan guarantee at the same time as other incentives rather than in a later phase; a program enacted later may produce few conversions within a typical ten-year evaluation window (Rosa Rodriguez 73, 87).
Some programs, such as state-run SSBCI funds, can be established and capitalized without legislation. Although these funds are not specifically designed for employee ownership, each fund can create a carve-out for employee-owned businesses within their eligibility criteria (Rosenbloom, 30).
Loan coverage should be capped below 100 percent (typically between 50 and 80 percent of the principal) based on the needs of the lender and the risk tolerance of the program (Rosenbloom, 31). In Massachusetts, a guarantee covering 75% of loan principal was modeled to return $15.50 in fiscal benefits for every $1 of expected cost under conservative assumptions, the highest return and the lowest cost per job preserved ($1,755) of any option analyzed (Rosa Rodriguez 73, 76–77).
Mistakes to Avoid
It’s important to ensure that mechanisms are in place, such as surety bonds or a guarantee fee, in case an employee-owned firm defaults on its loan(s).
Additionally, loan guarantees should not be applied to loans if the lender would already issue a loan without one (Rosenbloom, 31).
Existing/Proposed Policies + Exemplars
Georgia’s Small Business Credit Guaranty Program covers 50% of loans up to $1 million (Rosenbloom, 29).
Oregon’s Credit Enhancement Fund covers up to 80% of a private loan (Rosenbloom, 29).
Colorado has a cash collateral support program that is designed to reduce dependence on seller or personal guarantees. This increases the maximum loan amount small businesses can receive, since most companies cannot pledge enough collateral on their own. As of September 2026, the program has issued roughly $200 million in lending without losing capital (Rosenbloom, 29).
New York (S05685) – proposed: Would have established a low-cost state loan and loan guarantee program to fund worker cooperative conversions (Project Equity).
Sources/Experts Consulted
Jason Wiener – Jason Wiener | p.c.
Max Chaoulideer – Democracy at Work Institute
Brayan Rosa-Rodriguez. Turning Economic Crisis Into Resilience: State Incentives to Preserve Small Businesses through Worker Ownership. 2026.
Julien Rosenbloom. “Employee Ownership as Economic Development: A Development Finance Playbook for States.” Lafayette Square Institute, September 2026,
https://www.lafayettesquareinstitute.org/research/employee-ownership/economic-development/.
Summary
Provides worker co-ops with preferential bidding for municipal and state contracts, potentially in tandem with women- and minority-owned businesses.
This policy may include adding co-ops as a preferred source for public contracts or instituting set-aside contracts. Alternatively, EO businesses could receive discounts when bidding on contracts.
Best Practices
It’s important to consider whether prioritizing employee-owned businesses in procurement will keep minority-owned businesses from receiving certain contracts. Consider designing legislation that works around this, for example, by allowing businesses that are both employee-owned and minority- or women-owned to qualify under both preferences. Unlike one-time incentives, a procurement preference rewards the conversion decision for the life of the business, strengthening the case for conversion in sectors where public contracts are a meaningful source of revenue (Rosa Rodriguez, Policy Options memo).
Mistakes to Avoid
Proper program oversight and data reporting are necessary to ensure governments are actually giving worker cooperatives priority when bidding for contracts. Research has found that policies preferencing women- and minority-owned businesses have demonstrated mixed results in offering a true competitive bidding advantage.
Existing/Proposed Policies + Exemplars
Oregon (HB3646) – enacted: Enables state agencies to give a 5% preference in procuring goods and services from employee-owned businesses (Project Equity).
Maine (LD1969) – enacted: Mandates that the Maine Public Utilities Commission must “factor in whether a majority of the individuals working on an assisted project are members of an entity that is employee-owned” when awarding at least $50,000 for state-funded renewable energy projects (Project Equity).
Grand Rapids, MI, was the first city to provide purchasing preferences for employee-owned businesses by receiving discounts when bidding on contracts.
New York (SB 9678) – proposed: Would mandate that employee-owned businesses are given priority by New York state agencies, public authorities, and school districts for public contracts (Project Equity).
Sources/Experts Consulted
Jason Wiener – Jason Wiener | p.c.
Matt Licina – National Center for Employee Ownership
Max Chaoulideer – Democracy at Work Institute
Tyler Rivera – Project Equity
Summary
Provides a state capital gains tax exemption on up to $1 million in gains for business owners who sell at least 51% of their business to a worker-owned cooperative, including qualifying worker-owned LLCs.
Check out OpportunityToOwn.org for a full report on this policy.
Best Practices
Education and awareness campaigns are key to ensure business owners know about the incentive before choosing to sell.
To increase political feasibility, practitioners should conduct a cost-benefit analysis in their state to demonstrate the fiscal benefits of the policy. In Massachusetts, every $1 of foregone revenue was estimated to return between $3.70 and $9.40 in fiscal benefits over ten years, depending on assumptions, even before counting economic multiplier effects (Rosa Rodriguez 60).
Mistakes to Avoid
It’s important to ensure there are mechanisms/policies in place to complement a capital gains tax exemption when converting businesses to worker cooperatives. Otherwise, a business owner may end up selling their company to a group of worker owners who don’t have the capital or technical assistance they need for a successful conversion and long-term success.
However, if packaged with too many other ambitious policies, politicians may be less politically inclined to support the legislation than they would if it were presented on its own.
Existing/Proposed Policies + Exemplars
Colorado (HB25-1021)- enacted: Exempts capital gains tax for a business owner when selling to a worker cooperative or employee-owned business. This same law makes taxpayers eligible for a tax credit when converting an EO business.
Massachusetts (S. 305 and H. 503)- proposed: The Opportunity to Own bill exempts up to $1 million in capital gains from state tax when an owner sells to a qualified employee group, prorated for partial sales.
New York State (A1920 and S962) – proposed: Would have amended the New York State Tax Law to provide a complete capital gains tax exemption for sales of stock to an employee-owned enterprise.
Wisconsin (SB 21) – proposed: In addition to a tax credit for conversion costs, this bill would eliminate state capital gains tax for owners who sell more than 50% of their business to a worker cooperative or employee stock ownership plan.
Minnesota (SF4161)- proposed: Would allow sellers to subtract capital gains from a sale to a worker cooperative or employee stock ownership plan from their Minnesota taxable income.
Sources/Experts Consulted
Max Chaoulideer – Democracy at Work Institute
Zen Trenholm – Democracy at Work Institute
Brayan Rosa Rodriguez. Turning Economic Crisis Into Resilience: State Incentives to Preserve Small Businesses through Worker Ownership. 2026.
Summary
Builds on the federal Section 1042 rollover, which already lets owners who sell to an employee stock ownership plan (ESOP) or a worker cooperative defer capital gains tax by reinvesting the proceeds in qualified replacement property within 12 months. Although the federal provision treats worker cooperatives and ESOPs identically, cooperative conversions rarely use it, largely because owners and their advisors are unaware of the option (Rosa Rodriguez 69). In a state like Massachusetts that already conforms to Section 1042, a state enhancement would focus on awareness and on keeping reinvested capital in the state.
The enhancement could include provisions that would:
- Clarify that the selling business owner may remain as a worker-owner after a conversion, which current cooperative law permits but is not widely understood (Rosa Rodriguez 70).
- Ensure legal and financial professionals are aware of the enhancement for cooperative conversions through education programs.
- Promote local capital retention by requiring qualified replacement property to consist of in-state businesses (Rosa Rodriguez 70).
Best Practices
Because advisors are far more familiar with ESOP transactions, a general awareness effort may generate ESOP conversions more readily than cooperative conversions. An enhancement is therefore best paired with incentives that target worker cooperatives specifically, such as a capital gains tax exemption, rather than used as a substitute for them (Rosa Rodriguez 71). In Massachusetts, the enhancement was estimated to cost a fixed $200,000 a year in administration and outreach and to return $4.90 in fiscal benefits for every $1 under conservative assumptions (Rosa Rodriguez 69–70).
Mistakes to Avoid
Even if worker cooperatives are emphasized in the enhancement, business owners and professionals in the field may assume that only ESOPs are eligible for the federal benefit. This can be addressed through effective educational programming.
Existing/Proposed Policies + Exemplars
None (but explored in COWOP’s Opportunity To Own Incentives report (pp. 69–71)
Sources/Experts Consulted
Brayan Rosa Rodriguez. Turning Economic Crisis Into Resilience: State Incentives to Preserve Small Businesses through Worker Ownership. 2026.
Summary
Would provide targeted rental subsidies or preferred access to city-owned or publicly controlled commercial space for newly converted worker co-ops. In high-cost markets, rent burden in the first years after conversion can outweigh the benefits of other conversion incentives, putting the new cooperative at risk before it can repay its conversion financing (Rosa Rodriguez, Policy Options memo).
Best Practices
This policy is most actionable in cities with significant public real estate holdings or existing commercial stabilization programs, where an administrative preference for qualifying worker cooperatives may require little new legislation. Practitioners should consider first advocating for this policy at the municipal level before pursuing a state-level campaign (Rosa Rodriguez, Policy Options memo).
Mistakes to Avoid
A statewide policy may conflict with local real estate laws, making the legislation difficult to implement (see above).
Existing/Proposed Policies + Exemplars
In 2022, Maryland provided funding to new businesses in order to incentivize investment in vacant and commercial properties.
While not an example of a public subsidiy, Dance/NYC used foundation funding to make rehearsal spaces affordable to dancers in New York City.
Sources/Experts Consulted
Brayan Rosa Rodriguez
Summary
Provides cooperative businesses with a refundable tax credit to support qualified conversion, expansion, and ongoing support costs.
Best Practices
Because a tax credit is administered through the tax code, it does not require a separate annual appropriation, though a refundable credit still carries a direct revenue cost. In Massachusetts, a 50% credit on the $70,000 median conversion cost was estimated to cost $4.80 million over ten years under conservative assumptions, returning $3.30 in fiscal benefits for every $1 (Rosa Rodriguez 64–65).
The program could provide different caps based on ownership structure to fit the unique needs of each. Colorado’s Employee Ownership Tax credit uses this tiered structure by setting different caps for worker cooperatives, employee stock ownership plans (ESOPs), and alternative equity structures (Rosa Rodriguez 62).
Pairing a refundable tax credit with a capital gains tax exemption preserves the most jobs of any option analyzed, but at the lowest benefit-to-cost ratio ($1.70 per $1 under conservative assumptions) and the highest upfront cost, which may reduce political viability. A phased approach, enacting the exemption first and adding the credit once conversion volumes show the need, addresses this trade-off (Rosa Rodriguez 68, 86).
Mistakes to Avoid
Colorado has amended its program twice since enactment: HB 23-1081 raised the cap for worker cooperatives and employee ownership trusts from $25,000 to $40,000, and HB25-1021 raised the credit rate from 50% to 75% of eligible costs beginning in 2026 (Rosa Rodriguez 62). Practitioners should work to identify the specific capital needs of employee-owned businesses in their state to avoid amending the legislation in the future.
Existing/Proposed Policies + Exemplars
Colorado has two distinct credits for employee-owned businesses:
To Establish and to Expand (§ 39-22-542) – enacted: Provides a refundable credit for 75% of qualified conversion costs (50% before 2026), capped at $40,000 for worker cooperatives and employee ownership trusts, $150,000 for ESOPs, and $25,000 for alternate equity structures (Rosa Rodriguez 62).
To Strengthen and to Thrive (§ 39-22-542.5) – enacted: Provides a tax credit of up to 50% of the specific costs of employee-owned businesses, not to exceed $50,000, to ensure ongoing success.
Tennessee (SB1974) – proposed: Would provide a tax credit of up to 50% of the costs, not to exceed $25,000, of converting to an employee-owned business.
Sources/Experts Consulted
Matt Licina – National Center for Employee Ownership
Tyler Rivera – Project Equity
Brayan Rosa Rodriguez. Turning Economic Crisis Into Resilience: State Incentives to Preserve Small Businesses through Worker Ownership. 2026.
Summary
Allows employees to sell their accrued company benefits and receive a lump sum of funding to start a cooperative business. The state then issues a matching amount of public funding for the employee to establish a new worker cooperative business or initiate a conversion to a worker cooperative.
Best Practices
Worker buyouts may be more effective in labor-friendly areas with high local taxes. Additionally, it may be more effective if buyout efforts are coordinated regionally, such as several states in New England targeting policies in specific markets (Gowan 68).
Research has found that worker buyouts are most effective when targeted to mid-sized companies (between 50 and 250 employees). This should be considered when developing legislation for small business conversions to worker cooperatives (Gowan 66).
Mistakes to Avoid
It’s crucial to ensure that the program is providing the necessary capital and support infrastructure for workers looking to start a cooperative. Italy’s workout buyout program (see below) remains effective because workers are confident in their capacity to build a successful cooperative before pursuing a buyout.
Existing/Proposed Policies + Exemplars
Italy’s Marcora Law (Law 49/1985) allows workers to capitalize their unemployment and mobility benefits, alongside severance and personal savings, to finance a buyout through a new worker cooperative, with co-investment from state-backed funds. At least 257 worker buyouts were recorded in Italy through 2014, including some that predate the law (Vieta 2015).
New Jersey and Massachusetts provide stipends for pre-conversion technical assistance.
In the 1980s, Michigan, New York, California, and several other states passed buyout legislation to avert plant closures by transitioning to employee-ownership. However, research is limited on the long-term success of these programs (Project Equity).
Sources/Experts Consulted
Max Chaoulideer – Democracy at Work Institute
Rob Witherell – United Steelworkers
Employee ownership policy database | Project Equity
Gowan, Saoirse. Right to Own: A Policy Framework to Catalyze Worker Ownership Transitions. Democracy Collaborative, March 2026, https://static1.squarespace.com/static/668c154d4d09237bebbb257a/t/6750d4bde4b1b5687e248083/1733350591163/RightToOwn_web_sg.pdf.
Vieta, Marcelo. The Italian Road to Creating Worker Cooperatives from Worker Buyouts. Euricse Working Paper 78/15, 2015
Summary
Establishes a dedicated state fund to support cooperative transitions, technical assistance, and other needs. The program could utilize state funding or federal funds through the State Small Business Credit Initiative (SSBCI).
Best Practices
A revolving loan fund is best pursued once a loan guarantee program has demonstrated traction and conversion volumes confirm the need for additional capital (Rosa Rodriguez 77). Over a ten-year window, a $20 million fund in Massachusetts was estimated to return only $0.45 per $1 under conservative assumptions, because the full capitalization is counted as a cost. Since that capital is repaid and lent again, the fund is better evaluated as long-term ecosystem infrastructure than on its ten-year return (Rosa Rodriguez 76–77).
To ensure the fund remains sustainable over the long term, practitioners should consider a design that allows outside donations from non-public entities or individuals (see Indiana S. Bill 175).
Mistakes to Avoid
Several states have created revolving loan funds that have either dissolved or received no appropriated funding. To avoid this pitfall, practitioners should consider creating a fund that can utilize SSBCI funding or incorporating a multi-year state appropriation into the legislation.
Additionally, to avoid underutilization of capital in the fund, practitioners should identify the specific needs within their cooperative ecosystem to determine how much funding should be appropriated and the intended purpose of loans.
Existing/Proposed Policies + Exemplars
New Jersey (A5016) – enacted: Creates an Employee Ownership Revolving Loan fund that administers loan financing and “other financial tools” to support “employee ownership formation.” This fund can receive capital from state appropriations, federal funds, and private sector entities (Rosenbloom 5).
Colorado (HB17-1214) – enacted but unfunded: Requires the Colorado Office of Economic Development to establish and administer a revolving loan program for employee-ownership conversions. The program can administer federal funds through SSBCI but has yet to receive state funding.
Washington (SB 5096) – enacted but unfunded: Created a revolving loan fund to directly finance ESOP or worker cooperative conversions, contingent on federal funds such as SSBCI becoming available. In 2025, HB 2047 also eliminated funding for the state’s employee ownership program.
Massachusetts (Sec.16) – enacted but unfunded: Establishes a revolving loan fund for individuals to purchase “ownership interest in an employee-owned business.”
Indiana (S. 175) – proposed: Would create a low-interest revolving loan program that could accept outside donations.
Sources/Experts Consulted
Matt Licina – National Center for Employee Ownership
Rob Witherell – United Steelworkers
Rosa Rodriguez, Brayan. Turning Economic Crisis Into Resilience: State Incentives to Preserve Small Businesses through Worker Ownership. 2026.
Summary
Creates a certification process for entities that function or are structured as worker cooperatives but do not fall under the legal definition of a worker co-op. This would expand eligibility for LLCs, LLPs, and other entities structured as worker-owned cooperatives to apply for state funding.
Additionally, an improved certification process through the state-level Secretary of State could also help recognize foreign cooperatives registering to do business as a foreign entity.
Best Practices
Eligibility for certification could be determined by whether the entity is a member of the US Federation of Worker Cooperatives or a regional cooperative coalition like COWOP.
Mistakes to Avoid
If the eligibility criteria are too broad, it could lead non-cooperative entities to receive certification and divert funding that would otherwise go to worker cooperatives. Practitioners should also ensure that alternative certification processes don’t minimize the benefits attached to falling within the state definition of worker co-ops (ex., Massachusetts 157A).
Existing/Proposed Policies + Exemplars
Colorado (HB 23-1081) – enacted: Expanded the employee ownership tax credit eligibility to include alternative ownership structures, making it the first state to adopt a definition of worker ownership inclusive of various ownership structures.
Michigan (H.295) – proposed: Would add the phrase “entities determined to meet the standard of a Worker-Owned Cooperative Enterprise (WOCE) by the state’s Apex Industry Organization” to expand the state’s legal definition of worker cooperatives.
Sources/Experts Consulted
Jason Wiener – Jason Wiener | p.c.
Ethan Tupelo – Valley Alliance of Worker Cooperatives (VAWC)
Ernesto Cruz – Co-op Power
Summary
Provides worker co-ops with an advantage in receiving state and local licenses, such as for cannabis and liquor.
Best Practices
If state policymakers are open to legislation that provides licensing preferences to ESOP companies, this may pave the way to include a preference for worker cooperatives in the future.
Mistakes to Avoid
In June 2026, Rhode Island reset its application process for cannabis licenses in response to a series of federal lawsuits. Additionally, because not enough businesses applied for a license in the six regions across the state, regulators had to reduce the number of licenses they could issue, impacting businesses that relied on sales revenue to keep their doors open. To avoid these issues, practitioners should consider potential conflicts with federal law and determine the exact number of worker cooperatives businesses requiring a license before developing a policy.
Existing/Proposed Policies + Exemplars
Rhode Island (§ 21-28.11-24) – enacted: Mandates that a set number of cannabis licenses must be set aside for worker cooperatives.
Maryland (SB 215 ) – enacted: Creates an exception to Maryland’s limitations on the transfer of cannabis licenses by allowing businesses transferring ownership to their employees through an ESOP to transfer their cannabis license.
New York’s Cannabis Law aims to issue 50% of all licenses to Social and Economic Equity (SEE) applicants. However, not all worker cooperatives are eligible as a SEE applicant.
Minnesota (SF 3520) – proposed: Would allow ESOP companies to own cannabis licenses.
Sources/Experts Consulted
Jason Wiener – Jason Wiener | p.c.
Summary
Requires owners to notify all full-time and part-time workers within seven days of deciding to sell at least 51% of their business. The written notice must state the intent to sell, any proposed price, and contact information for the state’s employee ownership center. This policy complements Right of First Refusal.
Check out opportunitytoown.org for a full report on this policy.
Best Practices
Even before the seven-day notice window, workers should be aware of the cooperative landscape in their area and equipped with the knowledge/resources they need to purchase a business and pursue a conversion. Educational programming and capital support systems should work in tandem with this policy. Notice carries no direct fiscal cost, yet it expands the pool of businesses from which every financial incentive draws; without it, incentives reach only owners who already intend to sell to their employees (Rosa Rodriguez 83).
Mistakes to Avoid
Business owners may fail to comply with this law if there are no enforcement mechanisms in place. Consider including a right to a court injunction when business owners fail to comply (see Right of First Refusal).
Existing/Proposed Policies + Exemplars
Massachusetts (S.305 and H.503) – proposed: Requires owners to notify workers within seven days of deciding to sell, as part of the Opportunity to Own bill’s notice and opportunity-to-purchase provisions.
Rhode Island (H7964) – proposed: Requires owners to notify workers of a decision to sell and gives workers a 30-day exclusive window to begin a purchase process.
The federal WARN Act of 1988 requires all businesses with 100 or more employees to provide at least 60 days’ notice when laying off 50 or more employees at a single location. Some states have enacted their own versions of the WARN Act requiring companies, for instance, to provide at least 90 days’ notice to workers before a mass layoff.
Sources/Experts Consulted
Jason Wiener – Jason Wiener | p.c.
Rosa Rodriguez, Brayan. Turning Economic Crisis Into Resilience: State Incentives to Preserve Small Businesses through Worker Ownership. 2026.
Summary
Gives workers an opportunity 30 to formally signal their intent to buy and form a Qualified Employee Group (QEG). The QEG may then have the business independently valued and agree on a price, or to match a competing third-party offer. This policy works in tandem with Advance Notice of Sale.
Check out opportunitytoown.org for a full report on this policy.
Best Practices
It’s crucial that workers have the necessary capital and technical assistance to successfully carry out a worker cooperative conversion and guarantee its long-term success. Practitioners should prioritize strengthening the worker cooperative ecosystem in their region by (Rosa Rodriguez 88):
- Expanding state funding for owner outreach and education
- Establishing and funding a state office for employee ownership to subsidize technical assistance costs for conversions
- Developing training programs for financial and legal professionals
- Partnering with CDFIs and state lending programs
- Standardizing conversion documentation and templates
- Fostering peer learning networks.
Mistakes to Avoid
Business owners may fail to comply with this law if no enforcement mechanisms are in place. Consider affirming that the employee group has legal standing as a party to the sale, which confers a right to a court injunction when business owners fail to comply (see Advance Notice of Sale).
A lack of awareness among sellers and workers will dampen the policy’s effectiveness. For instance, Colorado’s refundable conversion tax credit, the longest-running in the country, drew only 12 to 37 applications a year across all eligible ownership structures in its first three years, suggesting that a generous incentive does not by itself generate conversions without sustained outreach (Rosa Rodriguez 65, 82).
Existing/Proposed Policies + Exemplars
Massachusetts (S.305 and H.503) – proposed: Owners must notify workers within seven days of deciding to sell. A qualified employee group (QEG) then has 30 days to signal intent to purchase and up to 180 days to reach a price or match a third-party offer. Workers may seek a court injunction if an owner fails to comply.
Rhode Island (H7964) – proposed: Gives workers a 30-day exclusive window after notice of a sale to begin a purchase process, without a right to match or an injunction remedy.
Some municipalities, like San Francisco, have proposed their own Right of First Refusal legislation for worker cooperatives.
Washington, DC’s Tenant Opportunity to Purchase Act gives tenants a right to purchase their building when a landlord decides to sell. New York City’s Council passed a similar Community Opportunity to Purchase Act for qualified nonprofits in December 2025, but it was vetoed, and the override vote fell short. In Colorado, mobile home owners have an opportunity to purchase their mobile home park when it goes up for sale.
Sources/Experts Consulted
Jason Wiener – Jason Wiener | p.c.
Rosa Rodriguez, Brayan. Turning Economic Crisis Into Resilience: State Incentives to Preserve Small Businesses through Worker Ownership. 2026.
Summary
Enables and funds incarcerated individuals to establish worker cooperatives in prisons and retain profits from the business. The policy would also establish a program to provide education and awareness to prison staff and incarcerated people around worker co-ops.
Best Practices
Since prison laws differ across jurisdictions, practitioners should research the landscape carefully and consult local stakeholders. When developing this policy in California, practitioners gathered insights from labor councils, peace officers, the state Department of Corrections and Rehabilitation, and several stakeholders to inform the bill’s design. The Sustainable Economies Law Center (SELC) has been collaborating with a currently incarcerated community leader to build a coalition with the prison system and submit narratives to the prison warden. SELC has also been proactive about liaising with various state legislative committees to ensure they’re on board with the bill.
It’s essential to have education for both incarcerated individuals and corrections officers and startup resources to support worker cooperative development. This includes having statewide operations agreements around how corrections officers should interact with co-ops (Gordon Nembhard and Nembhard).
Mistakes to Avoid
While some states may not have explicit bans on forming worker cooperatives in prisons, they still may not compensate incarcerated individuals for their labor, rendering it impossible for inmates to form a coop. In these cases, practitioners must consider campaigns around compensating individuals for prison labor.
If the cooperative operates only within the prison system, the business will experience high turnover, and workers will not be members of the cooperative upon their release. Consider a model where cooperatives can employ workers both inside and outside of the prisons.
Organizations that advocate for prison abolition may be opposed to a policy that channels more funding into prison. When designing legislation, practitioners should think carefully about restrictions that ensure the majority of program funding benefits incarcerated individuals and isn’t strengthening carceral infrastructure, such as allowing prison administrators to keep profits from the co-op.
Existing/Proposed Policies + Exemplars
California (AB -746) – proposed: Would incentivize the development of worker cooperatives inside of California prisons and create critical infrastructure for an ecosystem of cooperatives owned and controlled by incarcerated and formerly incarcerated individuals and crime survivors. The bill would require the Department of Corrections to provide co-ops with access to “equipment, materials and resources to support their operations” and prohibit correctional staff from having any power within the co-op (SELC). Note that California law already allows nonprofits and public entities to employ incarcerated individuals and pay them.
Puerto Rico: Incarcerated individuals successfully advocated to change Puerto Rico’s cooperative law, which had barred them from membership, and formed the Cooperativa de Servicios ARIGOS at the Guayama correctional facility. Under an agreement with the Department of Corrections, the cooperative contributes 15 percent of its profits in exchange for office space and utilities. In its first ten years, only two of more than 50 members released from prison returned to custody.
Italy: About 12% of Italy’s prison population is organized through a worker co-op and has only a 5% recidivism rate. In some cooperatives like Freedhome, which produces artisanal goods, roughly half of the incarcerated individuals work outside of prison on a half-day release.
Sources/Experts Consulted
Carlos Teuscher – Boston College Law School
Hope Williams – Sustainable Economies Law Center
Cooperatives in Prisons: A Liberationist Strategy – Sustainable Economies Law Center
Jessica Gordon Nembhard and Susan Nembhard. “Incarcerated Worker Cooperatives Are a Promising Step to Improving the Criminal Legal System.” Urban Institute, https://www.urban.org/urban-wire/incarcerated-worker-cooperatives-are-promising-step-improving-criminal-legal-system. Accessed 4 October 2026.
The World’s First Prisoner Worker Co-op | Grassroots Economic Organizing
Summary
Require workers’ compensation insurers to set discounted rates for worker cooperative LLCs or LCAs.
Currently, workers’ compensation is expensive for business owners, making it difficult for worker owners to receive affordable coverage.
Best Practices
One approach to this policy could be establishing disability insurance subsidies or exemptions for small employee-owned businesses.
Mistakes to Avoid
In 2016, the California Assembly passed AB 2883 (effective 2017), which reworked its workers’ compensation law but failed to consider cooperative corporations. This led to increased expenses for worker cooperative members, with one co-op’s compensation rates increasing to 40% of wages (Project Equity 35). In response, worker cooperative advocates helped pass SB 189 that same year, allowing cooperatives to claim exemption from workers’ compensation requirements.
Existing/Proposed Policies + Exemplars
All U.S. Federation of Worker Cooperatives’ (USFWC) members are eligible to apply for short- and long-term disability insurance provided by a third party.
Sources/Experts Consulted
Alex Ganote
Project Equity. “California Worker Cooperatives.” Project Equity, October 2021, https://project-equity.org/wp-content/uploads/2023/07/CaliforniaWorkerCooperatives_October2021_FINAL.pdf. Accessed 4 October 2026.
Summary
Enable employees owed settlements for wage theft or other judgments to receive ownership transfers in addition to or instead of cash. This policy could also include employees who are misclassified as independent contractors.
Best Practices
This policy could build on federal and state legislation to prevent wage theft by including compensation through ownership transfers as an option.
If employees hold equity in the company where they work, they may seek to receive this stock as compensation in wrongful termination cases. Practitioners could build on this legal framework to design a policy that includes employees who do not already own the business where they work.
Mistakes to Avoid
Practitioners should familiarize themselves with ERISA, the law governing companies that administer ESOPs, when developing a state policy to ensure it doesn’t conflict with federal regulations.
Existing/Proposed Policies + Exemplars
As of October 4, 2026, no policies were identified based on consultations with experts and preliminary internet research.
Sources/Experts Consulted
Carlos Teuscher – Boston College Law
Summary
Mandates that state workforce development agencies include resources (and potentially fund) programming on employee ownership in their trainings.
Best Practices
Practitioners should collaborate with Workforce Development Centers in their state to determine the best way to incorporate relevant curricula and resources on employee ownership within their training programs.
This policy could be proposed without a funding provision, making it more politically viable. However, this may then make it more challenging for workforce development centers to effectively educate on employee ownership.
Mistakes to Avoid
Without proper oversight and enforcement mechanisms, it could be difficult to track whether workforce development agencies are complying with the policy (see S. 2786 below).
Existing/Proposed Policies + Exemplars
New York (SB 6794) – enacted: Amends the state’s education law to include employee-owned businesses within pre-existing business development programs (Project Equity).
Federal (S. 2786) – enacted: Enacted in 2018, the Main Street Employee Ownership Act mandates that Small Business Development Centers across the country provide training and education on employee-ownership (USFWC). However, in 2021, the House Committee on Small Businesses found that the Small Business Administration (SBA) was not implementing this requirement. In response, the Committee proposed H.R. 5778 in 2025, which would expand the SBA’s outreach program on employee ownership (National Center for Employee Ownership).
Sources/Experts Consulted
Alex Ganote
Erwin Li – City Life Viva Urbana
Michelle de Lima – DSNI
Summary
Provides public investment in partnerships with universities and research organizations to strengthen scholarship on worker ownership.
Best Practices
Grants to research institutions could fund studies on conversion mechanisms, challenges, and long-term outcomes to strengthen regional cooperative ecosystems. Research should also track converted firms over time and across economic cycles, building the longitudinal data needed to evaluate which policies work (Rosa Rodriguez, Policy Options memo).
Mistakes to Avoid
Education and outreach programs are vital to ensure business owners and worker-owners are made aware of available research and understand how to utilize it to facilitate conversions to worker co-ops. However, research funding should complement, not delay, other policies. The existing evidence is already sufficient to justify moving forward with the instruments in this directory; research investment is most valuable as an ongoing commitment that improves policy design as programs expand (Rosa Rodriguez, Policy Options memo).
Existing/Proposed Policies + Exemplars
Ohio’s Employee Ownership Center (OEOC) is housed within Kent State University. OEOC leverages university resources to support businesses with succession planning, provide education and training, and conduct research and advocacy on employee ownership.
UMass Amherst’s Applied Economic Research on Cooperative Enterprises certificate program gives students the opportunity to conduct academic research on cooperatives and work with a cooperative enterprise. Public investments in programs like these could deepen academic research on cooperative ecosystems.
Sources/Experts Consulted
Brayan Rosa Rodriguez
Ethan Tupelo – Valley Alliance of Worker Cooperatives (VAWC)
Steve Dubb – Shelterforce
Summary
Establishes a state office dedicated to advancing employee ownership. These offices can:
- Host educational programming and outreach to practitioners
- Build a peer network of cooperatives within the state
- Promote stories on employee ownership to the media
- Provide funding for worker cooperative feasibility studies
Best Practices
There are three common approaches to creating a state employee ownership office:
- As a state agency (Colorado, Massachusetts, Michigan)
- Within a public university (New Jersey, Ohio)
- As a nonprofit with state funding (Massachusetts, Vermont)
Nonprofit centers tend to be the most cost-effective approach, since they can receive both public and private funding. If starting a center at a university, there must be staff who have the capacity and interest to set up a program.
Mistakes to Avoid
State agencies that rely exclusively on public funding may struggle to receive appropriations on a yearly basis. In 2023, the Washington State Legislature voted to create a state employee ownership program, but within just two years, the governor’s budget eliminated the program’s funding (National Center for Employee Ownership).
Existing/Proposed Policies + Exemplars
There are at least eight state-funded employee centers and several more that do not receive public funding across the U.S. Check out the Employee Ownership Expansion Network’s website for a complete list.
Sources/Experts Consulted
Matt Licina – National Center for Employee Ownership
Tyler Rivera – Project Equity
Max Chaoulideer – Democracy at Work Institute
Zen Trenholm – Democracy at Work Institute
Employee Ownership in the States | U.S. Department of Labor
Summary
Through an executive order, direct the state to fund and implement a study on employee ownership, including co-ops, as a safety net for worker displacement from AI.
Best Practices
Implementing policy through an executive order, or another administrative approach, is often faster than doing so legislatively. However, policies should eventually be codified through legislation and backed by sustainable funding sources to ensure long-term durability of the program (Rosenbloom 61).
Mistakes to Avoid
If executive orders are not eventually backed by legislation, they will be less durable across administrations and may lack the necessary funding to be implemented effectively (Rosenbloom 60).
Existing/Proposed Policies + Exemplars
California (Executive Order N-6-26): Made in response to AI’s displacement of workers, an order that directs the state government to review policies and opportunities to expand employee ownership. Specifically, the order directs California’s Business and Economic Development and Small Business offices to explore “existing regulatory barriers to employee-owned company structures, as well as best practices leveraged in other states to provide direct and indirect economic support for the formation of or conversion to employee-owned companies” (National Center for Employee Ownership).
Sources/Experts Consulted
Max Chaoulideer – Democracy at Work Institute
Tyler Rivera – Project Equity
Zen Treholm – Democracy at Work Institute
California Governor’s AI Order Supports Employee Ownership
Julien Rosenbloom. “Employee Ownership as Economic Development: A Development Finance Playbook for States.” Lafayette Square Institute, September 2026, https://www.lafayettesquareinstitute.org/research/employee-ownership/economic-development/.
Summary
State policy to ensure workers have substantial representation on corporate boards.
Best Practices
Co-determination works best with a “trifecta” of policies that would ensure workers have a right to management (worker co-ops), ownership (worker co-ops and ESOPS), and governance (worker co-ops).
Practitioners may also wish to consider advocating for legislation that requires companies to establish joint labor-management committees—forums for workers and employers to collaborate on improving workplace issues. Minnesota, for instance, requires workplaces with more than 25 employees to establish a labor-management committee.
Mistakes to Avoid
While states can enact their own employment laws, state co-determination legislation is potentially less viable, since it would get entangled with federal labor laws (Palladino, Harvard Law School Forum on Corporate Governance).
Existing/Proposed Policies + Exemplars
Germany’s Codetermination Act of 1976: Requires companies to have a supervisory board made up of employees and shareholders.
U.S. federal policy proposed by Senator Warren: Warren’s Accountable Capitalism Act calls for corporations with over $1 billion in revenue to ensure that no fewer than 40% of their corporate directors are elected by a company’s employees.
Massachusetts enacted co-determination legislation in 1919 for manufacturing companies. However, the law only makes co-determination voluntary and does not require companies to include workers on their board of directors.
