Foundling Limeleaf: Our Journey to Establishing a Cooperative Company

At Limeleaf, how we do our work is equally important as the work itself. As we explained in a previous post, Limeleaf operates as a worker cooperative, and we are dedicated to embodying the Seven Cooperative Principles.

A worker cooperative, or co-op, is a business owned and controlled by its members. Each member has an equal say in how the company is run and shares its profits and losses. Limeleaf operates as a cooperative business, but we are not "officially" a New York State worker cooperative for reasons we will explain later.

It's unusual to structure a tech company as a co-op (though, happily, it is becoming less rare). Most use the traditional model where the company's founders and investors own the company, and everyone else involved is simply an employee. Employees might get a small share of ownership (usually in the form of stock options), but nothing close to what the founders and investors get. In our company, all members own a share of the company that is proportional to the work they've put into it.

Since we've taken this unconventional route, we thought it would be interesting to write a series of posts about the challenges we've had and lessons we've learned while bootstrapping Limeleaf. We hope they will provide insights that other founders can apply if they choose the co-op model.

Today, we'll begin with the first snag we hit–establishing Limeleaf as a New York state business.

Incorporating as a Co-Op in New York State - Nope!

We are proud denizens of the Empire State, and in keeping with our company's local-first ethos, we wanted to incorporate Limeleaf in our home state. However, we are only three members at this point, and New York requires at least five members to incorporate under the Cooperative Corporations Law (CCL).

What's more, New York only allows co-ops formed under the CCL to have the words "co-op" or "cooperative" in their name (in fact, they mandate it). If we couldn't incorporate our company under the CCL, how would we structure it, and what would we call ourselves to express our identity as a cooperative business? After a conversation with our co-op technical advisor, we found an option: the Limited Liability Corporation, or LLC for short.

Limeleaf Worker Collective, LLC is Born

Deciding how you want to structure your business is called "choosing an entity."

An LLC is a business structure that combines the limited liability protection of a corporation with the tax simplicity of a partnership. Unlike corporations, LLCs have members rather than shareholders and can be more flexible in structuring ownership, profit distributions, and management structures. We thought this membership notion aligned well with our cooperative principles.

In addition, we opted for a member-managed LLC instead of a manager-managed LLC, as it will enable us to implement democratic decision-making processes among our members.

As for the "Worker Collective" part, we felt that it was a nice workaround to the CCL restriction on using the word "cooperative" in our name. It expresses that we are a group of like-minded people operating a worker-focused company.

LLCs also limit personal liability for business debts and obligations, so members' personal assets can't be seized to pay creditors. Also, they are not subject to corporate income tax; profits or losses "pass through" to the members' personal income taxes, thus avoiding double taxation. These aspects aren't related to cooperatives, but they are nice perks.

Lessons Learned

• Remain calm, and leverage the co-op community. Setting up any business can be overwhelming, but worker cooperatives can be extra nerve-wracking because they are rare in the United States. As such, there aren't as many technical advisors, lawyers, and CPAs who can help you. Luckily, the co-op community is very friendly, and resources like Co-Oplaw.org and the U.S. Federation of Worker Cooperatives (USFWC) can help point you in the right direction and make referrals. Write to them, they are there to help!

• Get a lawyer and an accountant, ASAP. We'd set up sole proprietor LLCs in the past and figured we had the skills to set up a partnership. We did not. We soon found ourselves struggling with questions like, Should we be W-2 employees or 1099 independent contractors? and What are 'patronage dividends'? (We'll cover some of these questions in future posts.) We scrambled to find a lawyer and an accountant. Luckily, we found a lawyer pretty quickly but didn't have as much luck finding an accountant. Turns out, they are kinda busy in March and April...

Thanks to Our Amazing Advisors

We want to thank the good people at the U.S. Federation of Worker Cooperatives (USFWC) and the Edward P. Swyer Justice Center at Albany Law School for their support and guidance.

We Want to Hear From You!

We hope this post is useful to anyone who is setting up a (very) small tech worker cooperative. Look for more posts in the coming weeks. If you want help starting a co-op in New York, or just talk co-ops in general, drop us a line.