Business transfers are part of succession planning, which involves transferring ownership and control of a business to new management. In a family business, this is often due to the exit, retirement, or death of the owner. The three main options are:
- transferring ownership to a family member
- transferring ownership to a non-family member
- voluntary liquidation.
A successful business transfer
We will focus on new ownership by successful business transfer through a co-operative structure, as evidenced in Europe. A number of elements can stand in the way of a successful business transfer, especially when it comes to SMEs that are owner-managed and operate under a unique business structure.
These obstacles include:
- knowledge of specialisation;
- transparency around processes and profits;
- tax compliance issues;
- the legal status of an organisation;
- and age (in that younger organisations do not have the wealth of experience or reputation of their older counterparts).
Exiting the business
As with many other regulated aspects of business ownership, the type of organisation will also make a difference. The business type affects what steps are required to transfer ownership. For example, a sole proprietor has total control over the business and therefore has full rights to complete a sale.
The rules for partnerships and limited liability corporations will require additional actions that are specific to their situation to complete a transfer. Because these steps tend to be situation-specific, to tackle these obstacles effectively, informed counsel, preparation, and transparency are key. One way to put in place a successful exit strategy is to consider the transfer of a business to its employees through a co-operative structure.
This has the advantage of transferring the business into the hands of those that know the daily workings of the business and can act to save jobs and skills at the same time. In Europe, the most common result of such transfers has been a substantial part of the jobs have been maintained and job creation has re-started. In all studied cases, the maintenance of an industrial or service activity in a community has contributed to the maintenance of the local entrepreneurial fabric, thus keeping in place more jobs than those actually saved in the transferred enterprise.
A co-operative exit strategy
While a co-operative exit strategy has gained ground since the European economic crisis of 2008, this is not a new way to manage succession. Co-operative plans have been active for many years in industrial enterprises, such as Ceramica Imola in Italy or Chèque Déjeuner in France. Business transfers to employees have since then been repeated in various national environments around the world, and in varied economic sectors.
This experience shows that the rate of success is high, provided a series of conditions are met. In Spain, for example, 75 enterprises were transformed into cooperatives in 2012 according to the Spanish Confederation of Worker Cooperatives. Director of COCETA, Paloma Arroyo praises this as “a model that … generates local wealth and allows employees to decide the direction of their life and the life of their enterprise.”
Business transfers in France, Italy and Spain
Research shows that France, Italy, and Spain have the largest amount of successful business transfers. Success depends on a number of factors, including an adequate legal framework that protects and promotes worker cooperative enterprises, a high level of organisation and consolidation of worker cooperatives into federations, and policy measures facilitating business transfers to employees.
On the back of this experience, a transfer-friendly regulatory framework is under development in some European countries, yet awareness of the entrepreneurial community and stakeholders (professional associations, legal firms, and consultants to entrepreneurs) is still relatively low, as is the monitoring of business transfer activities in order to support the practical implementation of the new framework.
In a business conference in June this year, The European Confederation of Cooperatives in Industry and Services analysed the co-operative model. The conference offered an opportunity to present co-operative enterprises to employees and discuss the Entrepreneurship 2020 Action Plan. For Secretary General of the Confederation, Bruno Roelants:"This is the appropriate moment for the EU to consider examples of saving enterprises, jobs and skills.”