Laws Impacting Worker Cooperatives in the United States (AI-GENERATED REPORT)

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Query used to generate this report:

"Give me a comprehensive report on any and all laws in America that deal with worker cooperatives. Include links to where one could review the law, a detailed summary of the law, a tldr for each law, and an analysis of how this law effects worker cooperative in America for each law."

Laws Impacting Worker Cooperatives in the United States.pdf

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Laws Impacting Worker Cooperatives in the United States

Federal Laws and Policies

Subchapter T of the Internal Revenue Code (26 USC §§1381-1388) – Cooperative Taxation

TL;DR: Subchapter T provides special tax treatment for cooperative corporations, ensuring that profits distributed to members (patronage dividends) are taxed only once. Cooperatives (including worker co-ops) can deduct patronage refunds paid to members, avoiding double taxation. This encourages the cooperative model by aligning tax burdens with member income.

Detailed Summary: Enacted in 1962, Subchapter T of the IRS Code defines how cooperatives are taxed federally. It allows a co-op to exclude or deduct from its taxable income any patronage dividends (refunds) distributed to its patrons in proportion to business done with the co-op. To qualify, the co-op must operate on a cooperative basis, which generally means democratic member control and distribution of earnings based on patronage. Subchapter T applies to most types of cooperatives except certain utilities and credit unions (which have other provisions). It establishes the principle of single taxation for co-op earnings: profits are taxed either at the cooperative level or at the member level, but not both.

Impact on Worker Cooperatives: For worker co-ops, patronage is typically measured by labor contributed (hours worked or similar), so Subchapter T allows them to allocate earnings to worker-members in proportion to their work. Those distributions (patronage dividends) become tax-deductible to the co-op and taxable income to the members, resulting in overall lower tax burdens. This tax regime is enabling – it helps worker cooperatives compete with conventional firms by avoiding double taxation of shared profits. Worker co-ops that incorporate as cooperative corporations (or elect to be taxed as such) can leverage Subchapter T to reinvest more in the business or return more to worker-owners. (Official text: 26 U.S.C. §1381 et seq.)

Official Reference: 26 U.S. Code § 1381-1388 (Cornell Law Legal Information Institute)

Employee Retirement Income Security Act of 1974 (ERISA) – ESOPs and Employee Trusts

TL;DR: ERISA (Pub. L. 93-406) is a federal law that, among many retirement plan types, sanctioned Employee Stock Ownership Plans (ESOPs) – a form of employee benefit plan that holds company stock. Subsequent tax amendments (e.g. Tax Reform Act of 1984) created powerful incentives (like capital gains deferral) for business owners to sell to ESOP trusts. While not cooperatives, ESOPs are a widespread employee-ownership vehicle that often complement the worker co-op ecosystem by facilitating broad employee ownership of companies.

Detailed Summary: ERISA established fiduciary and tax rules for employer-sponsored retirement plans, including ESOPs – which Congress defined as a qualified, stock bonus plan designed to invest primarily in the employer’s securities. ESOPs gained further support through federal tax laws: for example, 26 USC §1042 (added in 1984) allows owners of C-corporations to defer capital gains tax if they sell at least 30% of the company to an ESOP and reinvest the proceeds in U.S. securities. Additionally, companies can deduct ESOP contributions (even those used to repay ESOP buyout loans), and ESOP-owned S-corporations can operate essentially tax-free. Over the years, federal policy has thus made ESOPs a tax-favored means of transferring ownership to employees. Other provisions (e.g. 26 USC §409 and §4975) set technical requirements to prevent abuse, ensure broad-based ownership, and protect employee participants.

Impact on Worker Cooperatives: ESOPs are not cooperatives, but they impact worker co-ops by raising awareness and legitimacy of employee ownership as a whole. ESOP incentives can sometimes draw companies to choose an ESOP trust over a cooperative conversion. However, many values-driven companies eventually combine elements: for instance, a worker cooperative might adopt an ESOP for tax advantages or a company with an ESOP might later deepen democracy in the workplace, behaving like a co-op. Federal ESOP laws also inspired states to consider similar tax breaks for co-ops (see state sections on Iowa, Missouri, etc., which give capital gains exclusions to owners selling to employee-owned firms). Overall, ERISA and related tax provisions enable employee ownership by lowering financial barriers to broad ownership, thus indirectly supporting the growth of worker cooperatives and democratic employee ownership models.

Official Reference: 29 U.S.C. §1001 et seq. (ERISA); 26 U.S.C. §1042 (Tax deferral on sales to ESOPs)

Small Business Act & Main Street Employee Ownership Act (2018) – SBA Lending to Co-ops

TL;DR: The Main Street Employee Ownership Act of 2018 (included in Pub. L. 115-232) amended the Small Business Act to make Small Business Administration (SBA) programs more accessible to cooperatives and ESOP-owned companies. It explicitly recognized worker cooperatives in federal lending programs, directed the SBA to guarantee loans financing business transitions to employee ownership, and mandated outreach and training through Small Business Development Centers. This law is the first federal legislation to name “worker cooperatives” and it aims to reduce financial barriers for co-ops.

Detailed Summary: Signed into law in August 2018, the Main Street Employee Ownership Act (MSEOA) was a bipartisan initiative (championed by Sen. Kirsten Gillibrand and Rep. Nydia Velázquez) to spur employee buyouts of small businesses. Key provisions included: (1) instructing the SBA’s 7(a) loan program to guarantee loans made to employee-owned businesses (including worker co-ops) for ownership transition, even allowing loans directly to a cooperative entity; (2) waiving the personal guarantee requirement for loans to cooperatives by permitting the co-op to provide an alternative form of guarantee (previously, SBA rules requiring personal guarantees from each 20%+ owner effectively barred many co-ops); (3) requiring the SBA to coordinate with the nationwide network of Small Business Development Centers (SBDCs) to provide education, training, and technical assistance on employee ownership models; and (4) mandating annual reporting on SBA lending to employee-owned firms to track progress. By embedding support for co-ops within the federal small business infrastructure, the Act aimed to unlock more conventional financing for worker coop startups and conversions.

Impact on Worker Cooperatives: MSEOA significantly enabled funding for worker co-ops. Before 2018, worker cooperatives struggled to access SBA-backed loans, but now co-ops can more readily obtain growth and buyout capital with government guarantees. The Act also raised the profile of cooperatives at federal agencies – for example, the SBA began training loan officers and resource partners on co-op business structures. Early results have been mixed (advocates noted slow implementation), but the law lays a foundation. In the long run, easier financing means more worker co-ops can form (especially via conversions of retiring owners’ businesses to co-ops) and existing co-ops can expand. By treating cooperatives on par with other small businesses, federal policy is incrementally shifting from a restrictive stance to a supportive one.

Official Reference: 15 U.S.C. §§631 et seq. (as amended by Main Street Employee Ownership Act, §866 of Pub. L. 115-232)

Federal Cooperative Programs (USDA & NCB)

TL;DR: Beyond business law, federal policy has long supported cooperatives through dedicated programs. The U.S. Department of Agriculture (USDA) runs cooperative development grants (especially for rural co-ops) and maintains a research library on state co-op laws. The National Consumer Cooperative Bank Act of 1978 created the National Cooperative Bank (NCB) to provide low-interest financing to cooperatives. These programs, while not worker-coop-specific, provide funding, technical assistance, and favorable credit to many co-ops, including worker-owned firms.

Detailed Summary: The USDA has a statutory mandate (7 USC §1932) to promote rural cooperatives. It funds the Rural Cooperative Development Grant (RCDG) program, which awards grants to nonprofit centers that in turn help start and grow co-ops (many of which are worker co-ops in areas like home care, local food, and artisan industries). USDA also provides educational resources – for example, it curated the State Cooperative Statute Library, an exhaustive, state-by-state comparison of cooperative laws, to encourage modernized state legislation. Separately, Congress in 1978 passed the National Consumer Cooperative Bank Act (12 USC §3001 et seq.), establishing a federally chartered bank to serve cooperatives. NCB, which opened in 1980, was capitalized by the U.S. government to offer loans and technical assistance to co-ops that might struggle to get financing from traditional banks. While initially focused on consumer and housing co-ops, NCB’s mandate expanded; today it finances a range of cooperatives (including worker co-ops) and continues to fulfill the Act’s goal of providing credit to “self-help” cooperatives.

Impact on Worker Cooperatives: These federal initiatives indirectly bolster worker co-ops by building a supportive ecosystem. USDA grants fund many regional cooperative development centers that incubate worker co-ops (for example, assisting with feasibility studies, business planning, and training in governance). The State Cooperative Law Library helps policymakers identify best practices for co-op statutes, which can lead to more enabling state laws. NCB has provided millions in financing to worker co-ops and employee-owned firms that commercial banks deemed too unconventional or risky – effectively filling a credit gap. Although worker cooperatives are eligible for most general business programs, having cooperative-specific resources (like NCB’s lending and USDA’s development grants) gives them an extra leg up. In summary, federal cooperative programs provide capital and expertise tailored to cooperative enterprises, thereby facilitating the formation and growth of worker-owned businesses.

Official References: 7 U.S.C. §1932(e) (Rural Coop Development Grants); 12 U.S.C. §3011 (National Cooperative Bank powers)

State Laws Governing and Affecting Worker Cooperatives

Each U.S. state has a unique legal approach to cooperatives, resulting in a patchwork of statutes. Some states have explicit laws recognizing worker cooperatives as a distinct business form, while others rely on general cooperative statutes or even lack any cooperative business entity law. Below, we detail relevant state laws (both those specific to worker co-ops and broader cooperative and employee-ownership laws) organized alphabetically by state. For each, we provide a summary, history/purpose, and analysis of its impact on worker co-ops, along with links to the statutory text or official references.

Alabama

Alabama Employee Cooperative Corporations Act (Title 10, Chapter 11, Ala. Code) – Worker Co-op Statute.

• TL;DR: Alabama explicitly authorizes worker cooperatives under the Employee Cooperative Corporations Act. Enacted in the 1990s, this law allows a business corporation to elect to be governed as an employee cooperative by filing a statement in its articles. It imposes the one-member/one-vote principle and permits internal capital accounts for members.

• Detailed: Alabama was one of the early adopters of a worker cooperative statute, providing a clear legal structure for co-ops. The Act (now codified at Ala. Code §10-14-1 et seq. in 1975 Code, recodified as Title 10A-11) defines an employee cooperative corporation as a firm that has elected to operate on a cooperative basis and be owned and controlled by its employees. Key provisions include: workers must constitute the majority of voting members; each member gets one vote in director elections (regardless of capital contributed); net earnings are allocated to members based on patronage (labor contributed); and the co-op can establish internal capital accounts to track member equity and distribute earnings. Alabama’s law closely mirrors the model promulgated in the early 1980s (which was also adopted in Massachusetts – see below). It also allows a cooperative to revoke its election and revert to a standard business corporation if desired.

• Impact: Alabama’s statute enables formation of worker co-ops by providing an off-the-shelf legal template. This lowers legal barriers – groups of workers don’t need to jury-rig an LLC or out-of-state coop form; they can incorporate as a cooperative corporation in Alabama with relative ease. The one-member/one-vote and labor-based profit distribution requirements ensure that any business using this Act truly operates as a worker-owned, democratic enterprise. While Alabama is not known for a large number of worker co-ops, the legal recognition is significant. It indicates a supportive environment in statute, if not in active state programs. The Act also provides some investor flexibility: it allows classes of stock, so long as voting stock is majority-held by workers and one-member/one-vote governance is preserved. This means Alabama worker co-ops can seek outside capital (via non-voting stock) without compromising employee control – a balance that can help co-ops raise funds. Overall, Alabama’s law is supportive and puts it among the states with a clear framework for worker cooperatives.

Official Reference: Alabama Code Title 10A, Chapter 11 (Sections 10A-11-1.01 through 10A-11-1.12)

Alaska

Alaska Cooperative Corporation Act (Alaska Stat. Title 10, Ch. 15) – General Cooperative Statute.

• TL;DR: Alaska has a comprehensive Cooperative Corporation Act allowing incorporation of cooperatives for any lawful purpose (except banking/insurance). It is not specific to worker co-ops but is broad enough to include them. The law grants cooperatives unique features (e.g. as member-owned entities not organized for corporate profit) and requires use of the term “cooperative” in the name for entities organized under it. Worker co-ops in Alaska typically organize under this Act, as there is no separate employee-cooperative statute.

• Detailed: Alaska’s Coop Corporation Act (AS 10.15.005–10.15.600) dates back to the 1950s and was influenced by traditional consumer and producer cooperative laws. It allows incorporation of a cooperative with a general purpose clause – essentially any business activity undertaken on a cooperative basis. Important provisions include: member voting rights (often one-member-one-vote by default, though proportional voting can be set for some co-ops); distribution of profits to members as patronage refunds; the ability to raise capital through the sale of membership shares or other equity, subject to cooperative principles; and merger/conversion mechanisms to and from other entity forms. There is no requirement that members be workers or consumers – the Act is flexible to accommodate worker-owned businesses, consumer stores, etc. However, Alaska does not explicitly define a “worker cooperative” in statute, so worker co-ops simply use this general law. The Act also stipulates that only entities formed under it can use “cooperative” in their name, protecting the cooperative identity.

• Impact: The Alaska statute provides a neutral but enabling framework. It neither gives special benefits nor imposes special restrictions on worker co-ops beyond general cooperative norms. Worker cooperatives can exist in Alaska by incorporating under Chapter 15 and writing bylaws that, for example, limit membership to workers and allocate voting rights equally among them. The advantage is that Alaska law recognizes cooperatives as distinct entities, which can confer credibility (e.g. courts and agencies will understand the coop structure) and possibly certain state tax or securities handling (Alaska, like many states, may exempt co-op shares from some securities registration requirements). There are no known additional tax incentives or state programs in Alaska specifically for employee ownership. In summary, Alaska’s environment is moderately supportive: it provides the legal vehicle for co-ops, but worker co-ops must operate mostly within the general cooperative and business regulatory framework without special accommodations or programs.

Official Reference: Alaska Statutes 10.15.005–10.15.600 (Alaska Cooperative Corporation Act)

Arizona

Arizona Cooperative Association Statutes (A.R.S. Title 10, Chapter 2, Article 2) – General Coop and Specific Co-op Laws.

• TL;DR: Arizona law does not have a dedicated worker cooperative act. It does, however, provide for nonprofit cooperative associations (primarily for producers or consumers) and electrical co-ops in its statutes. There is also an Employee Stock Ownership (ESOP) tax credit program enacted in 2021. Consequently, worker co-ops in Arizona either organize under the general nonprofit cooperative association law (if they fit within its scope) or more commonly as standard corporations/LLCs with cooperative bylaws. The state is gradually showing interest in employee ownership via tax incentives for ESOP transitions, which could indirectly benefit co-op conversions.

• Detailed: Arizona’s core cooperative statute is an older law (A.R.S. §10-2051 et seq.) for Nonprofit Cooperative Marketing Associations, historically meant for agricultural producers. This law allows incorporation of associations that operate on a cooperative basis (one-member-one-vote, limited dividends) and is restricted to marketing, produce, and goods-handling co-ops. It is not readily applicable to a worker-owned services business. Arizona also has laws enabling electric cooperatives (for rural electrification) and credit unions, but no general co-op corporation act that covers worker co-ops in diverse industries. Recognizing this gap, many would-be worker cooperatives in Arizona incorporate as standard for-profit corporations or LLCs under Title 10 or Title 29 and then adopt cooperative principles internally (e.g. shareholders agreement that each worker holds one voting share). On the employee ownership front, Arizona passed a modest tax incentive: starting in 2021, a state tax credit reimburses a portion of the costs for a business that converts to employee ownership (mirroring the approach of states like Colorado). Specifically, Arizona offers a tax credit (capped per year) for feasibility studies or transaction costs when owners sell to an ESOP or similar broad-based employee ownership vehicle (worker co-op or employee trust). This was part of Arizona’s budget bill in 2021, signaling new support for the concept.

• Impact: The lack of a tailored worker cooperative statute in Arizona means forming a worker co-op requires extra legal work and savvy. The cooperative association law is restrictive in scope (and being “nonprofit”, it means co-ops cannot distribute profits freely except as patronage). As a result, Arizona’s legal environment historically pushed worker co-ops to organize as regular businesses. The recent ESOP conversion tax credit, however, indicates a positive trend: policymakers are encouraging employee ownership as a succession plan. This could indirectly benefit worker co-ops if future legislation expands to recognize cooperative corporations or to include co-op conversions explicitly. In practice, Arizona’s supportive factors (like the credit and any technical assistance via local groups) remain in early stages. Thus, Arizona could be considered a neutral-to-restrictive state for worker co-ops: legally permissible, but without a streamlined cooperative code or significant supportive infrastructure yet.

Official References: Arizona Revised Statutes §10-2051 et seq. (Nonprofit Cooperative Associations); 2021 Arizona Sess. Laws, ch. ___ (Employee Ownership conversion tax credit provisions).

Arkansas

Arkansas Cooperative Corporations & Agricultural Co-ops (Ark. Code Title 4, Ch. 30 & Title 2) – General Cooperative Law with Limited Scope.

• TL;DR: Arkansas does not have a standalone worker cooperative law. It does have general cooperative corporation provisions (Arkansas Code §4-30-101 et seq.), but these are mostly oriented towards agricultural or purchasing co-ops and require a nonprofit structure. Arkansas also authorizes specific co-ops like agricultural marketing associations (Title 2) and rural electrics. Worker cooperatives in Arkansas typically either form under the general cooperative corporation chapter (adapting its provisions) or use standard business entities. There are no known state-level employee ownership initiatives or tax breaks as of now, making Arkansas’s environment relatively hands-off and traditional.

• Detailed: Arkansas’s general cooperative law (originally enacted decades ago) allows incorporation of a cooperative with members not stockholders, essentially as a non-stock membership organization. The law stipulates one-member-one-vote and operation at-cost for members, which aligns with cooperative principles. However, it tends to assume cooperative members are producers or consumers with a mutual interest (the statute’s language was drafted with farm co-ops, utility co-ops, etc. in mind). For instance, the agricultural cooperative society laws (Ark. Code §2-2-101 et seq.) provide for farmers pooling products. Nothing in Arkansas law explicitly addresses co-ops owned by employees of a business providing services or manufacturing goods. That said, a group of employees could theoretically incorporate under §4-30-101 by declaring their cooperative purpose. The law would enforce distribution of net earnings to members and limited dividends on any capital. Alternatively, Arkansas worker co-ops might choose to incorporate as nonprofit corporations under a cooperative charter, or form an LLC and include cooperative bylaws. To date, Arkansas has seen few worker co-ops; its statutes remain largely unmodernized in this regard. There have been some recent discussions among regional cooperative developers about pushing for a worker coop statute (similar to neighboring states like Tennessee, which also lacks one), but no legislation yet. Arkansas has not implemented ESOP-specific incentives or an employee ownership center, so its support is minimal.

• Impact: In Arkansas, the legal framework is permissive but not facilitating. Worker co-ops are legally possible but not expressly provided for, so attorneys must patch together existing laws to fit a worker coop. The general cooperative corporation law’s nonprofit orientation can be a poor fit for a worker-owned enterprise that needs flexibility to retain earnings or raise capital. As a result, some Arkansas cooperatives have incorporated in other states with better laws or used LLCs. The absence of state programs or incentives means there is little proactive encouragement. Therefore, Arkansas is relatively restrictive/passive – it neither outlaws worker co-ops nor empowers them with tailored statutes or support. Efforts to form co-ops in Arkansas may face more complexity and less state-facilitated finance compared to states with progressive coop laws.

Official Reference: Ark. Code Ann. §4-30-101 to 4-30-116 (General Cooperative Corporation Act)

California

California Cooperative Corporation Law (Cal. Corp. Code §12200 et seq., as amended by Worker Cooperative Act of 2015, AB 816) – General Cooperative Statute with Worker Co-op Provisions.

• TL;DR: California has a robust Cooperative Corporation Law that applies to all types of cooperatives, and it was updated in 2015 (AB 816) specifically to accommodate worker cooperatives. The law now formally defines a “worker cooperative” (or employment cooperative) and allows a cooperative corporation to elect worker-coop status in its articles. Key features for worker co-ops include: at least 51% of workers must be member-owners, one worker-one vote governance, and the option to create internal capital accounts and distribute earnings based on labor patronage. California also recently enacted the California Employee Ownership Act (2022), establishing a state Employee Ownership Hub to promote co-ops, ESOPs, and employee ownership trusts. In sum, California provides one of the most supportive legal environments for worker co-ops.

• Detailed: California’s cooperative law (found in the Corporations Code §§12200–12316) was historically called the “Consumer Cooperative Corporation Law,” but AB 816 in 2015 renamed it simply the Cooperative Corporation Law and clarified it applies broadly. The 2015 amendments (also known as the California Worker Cooperative Act) introduced several worker-coop-specific provisions: (1) a definition of worker cooperative as a corporation including a class of worker-members who contribute labor and have voting rights, with at least 51% of the workforce being member-owners; (2) a statement of purpose for worker co-ops, emphasizing creating sustainable jobs and improving quality of life for workers; (3) allowance for a worker coop to authorize investor members (non-worker investors) provided that worker-members retain majority control – i.e., at least 51% of voting power must be held by workers; (4) an optional provision for “internal capital accounts” and indivisible reserves, enabling a system where the co-op’s net book value is reflected in member accounts and a collective account (this mechanism facilitates patronage-based equity allocation and makes share redemptions easier). These changes made it easier to raise outside capital while preserving worker control and to structure capital accumulation in the co-op. The law also kept general coop features: one-member-one-vote by default, distribution of net earnings to patrons (which in a worker coop means to worker-members by hours worked or similar), and exemption from certain securities requirements for membership shares. In 2022, California doubled down on support with the Employee Ownership Hub (through AB 2849, “California Employee Ownership Act”). This established an office within the Governor’s Office of Business and Economic Development to advocate, coordinate resources, and potentially offer grants for employee ownership transitions. While funding for grants was cut from the final 2022 bill, the Hub still serves as a clearinghouse to assist businesses in becoming worker co-ops or ESOPs.

• Impact: California’s environment for worker cooperatives is highly supportive. Legally, the 2015 Act gave worker co-ops explicit standing and legitimacy. By defining worker co-ops in statute, California made it easier for practitioners, lawyers, and regulators to understand this entity, likely reducing friction (e.g., banks or agencies can refer to the law to see how a worker coop is structured). The allowance of non-member investors (unique among many states) is a significant boon for growth – co-ops can attract community investment or partner capital yet must still ensure worker-members own a majority of voting equity. This flexibility has led to innovative financing models in California co-ops. The cooperative corporation form also enjoys some tax benefits under state law: California Revenue & Taxation Code conforms to federal Subchapter T, meaning patronage distributions by co-ops are deductible for state tax as well. On the policy side, creation of the Employee Ownership Hub indicates California views worker co-ops as part of economic development. The Hub’s mandate to raise awareness and streamline regulations could result in more businesses converting to co-ops. Already, California has a relatively large number of worker co-ops (from tech startups to bakeries), and we can expect further growth. In summary, California not only provides a strong statutory foundation for worker co-ops but also is moving toward active promotion, making it one of the leading states in this arena.

Official References: California Corporations Code §12200 et seq. (Cooperative Corporation Law, including §12310 defining worker cooperative); AB 816 (2015), 2015 Cal. Stat. ch. 255; AB 2849 (2022) / California Employee Ownership Act.

Colorado

Colorado Uniform Limited Cooperative Association Act (Colo. Rev. Stat. Title 7, Article 58) – Flexible Cooperative Statute; Colorado Employee Ownership Office & Tax Credit (2019–2021 laws).

• TL;DR: Colorado is often cited as a model for modern cooperative law. It adopted the Uniform Limited Cooperative Association Act (ULCAA) in 2010 (C.R.S. §7-58-101 et seq.), which allows formation of a cooperative with both patron members and investor members and is usable by worker co-ops. This law guarantees that workers retain control if used as a worker coop (e.g. by organizational articles) but gives flexibility in financing. Colorado has also been a policy leader: it created a Colorado Employee Ownership Office in 2019 to support co-ops/ESOPs and in 2021 implemented a tax credit for businesses converting to employee ownership (including worker co-ops). With legal flexibility and active state support, Colorado is one of the most supportive environments for worker co-ops.

• Detailed: Colorado’s ULCAA-based law (sometimes called the Colorado “Limited Cooperative Association Act”) is a departure from traditional coop statutes. Under C.R.S. 7-58, a cooperative may be formed for any lawful purpose and can choose to distribute rights and financial returns among different member classes. For example, it permits outside investors to hold non-patron membership interests and even some voting rights, though it requires that patron members (e.g. the workers, if it’s a worker coop) have at least 51% of the voting power on fundamental matters. It also allows a coop to dispense with one-member-one-vote in favor of voting based on patronage or other arrangements (again subject to ensuring patron control). A worker cooperative under this statute would designate its worker members as the patron class. The law includes provisions on membership, distributions, marketing contracts, and dissolution that are very flexible – it is meant to accommodate any type of cooperative enterprise (agriculture, platform cooperatives, multistakeholder co-ops, etc.). Colorado also has older cooperative laws (for instance, a Electric Cooperative Act and a Building Cooperative statute), but most new co-ops choose the ULCAA form. On the policy side, Colorado established an Employee Ownership Office in the Office of Economic Development (by legislation in 2019, C.R.S. §24-48.5-102). This office conducts outreach, education, and coordinates loan programs to encourage conversions to employee ownership. It partners with local organizations to run the Colorado Employee Ownership Network. In 2021, Colorado passed H.B. 21-1311 which, among many tax changes, created a state income tax credit reimbursing up to 50% of a business’s conversion costs when transitioning to a worker cooperative, ESOP, or employee ownership trust. The credit was $25,000 for coop conversions (and initially $25k for coops vs $100k for ESOPs; in 2023, they raised these caps to $40k and $150k respectively for coops and ESOPs). Qualifying expenses include legal and accounting fees, business valuation, etc., making it a substantial incentive.

• Impact: Colorado’s legal structure is highly enabling – ULCAA gives worker co-ops the ability to tailor their governance and financial model to their needs. For instance, a Colorado worker coop could issue non-voting investment shares to raise capital, something not possible under strict one-member-one-vote laws. This has attracted innovative co-ops and even led commentators to dub Colorado “the Delaware of cooperative law” (for its flexibility). The protection that workers must have majority governance ensures that even with investors, worker co-ops remain true to member control. Furthermore, the state’s active promotion via the Employee Ownership Office and tax credits has already increased interest: more Colorado businesses are exploring selling to their employees, and the number of worker co-ops and employee-owned firms is growing. The credit effectively reduces the cost of conversion by thousands of dollars, directly encouraging small business owners to consider co-op models. Colorado also gives modest preferences in some state programs for employee-owned companies. In all, Colorado offers comprehensive support: a modern legal entity, financial incentives, and institutional backing. It is regarded as one of the most fertile grounds for worker cooperatives in the U.S., both in law and practice.

Official References: Colo. Rev. Stat. §7-58-101 et seq. (Uniform Limited Cooperative Associations Act); Colo. Rev. Stat. §24-48.5-102(2)(k) (Employee Ownership Office duties); Colo. Rev. Stat. §39-22-542 (Employee Ownership Tax Credit).

Connecticut

Connecticut Worker Cooperative Act (Conn. Gen. Stat. §33-418f et seq.) and Cooperative Associations – Worker Co-op Statute.

• TL;DR: Connecticut follows the Massachusetts model by having an Employee Cooperative Corporation law (passed in 1982, soon after Massachusetts). This allows a business corporation to elect to be a worker cooperative. The Connecticut statute (Chapter 599, Section 33-418f through 33-418o) closely mirrors Mass. Chapter 157A, providing one-person-one-vote, labor patronage dividends, and internal capital accounts. Additionally, in 2018 Connecticut amended this law to allow nonprofits to be members of worker co-ops (enabling, for example, a nonprofit to co-own a coop as a member for support purposes). Connecticut also has general cooperative laws (for non-stock cooperatives and specific sectors), but the worker coop statute is the primary vehicle for employee-owned firms.

• Detailed: Connecticut’s worker cooperative provisions are found within its Business Corporation Act. Any corporation formed under the Connecticut Business Corporation Act may elect in its certificate of incorporation to be governed as a “worker cooperative corporation.” The key features include: a definition of “member” as an employee entitled to vote for directors; a requirement that at least a majority of the employees of the company be members if the cooperative election is made; one vote per member in governing the business; profits must be allocated to members based on their work contribution (patronage) after setting aside any necessary reserves; and an allowance for establishing internal capital accounts to reflect member equity and a collective account for unallocated capital. Connecticut’s law also uses the term “membership share” for the voting share each worker-member holds (which typically has a nominal value), and it limits who can be a member to individuals employed by the cooperative. Notably, Public Act 18-101 (2018) amended the worker cooperative statute to add that a nonprofit organization can become a member of a worker cooperative, and even serve on its board, if permitted by the cooperative’s bylaws. This innovation was intended to facilitate cooperative development by letting supportive nonprofits (like community development orgs) hold a membership interest (often a non-voting or special class) to help finance or govern the coop during early stages. Outside of this worker coop statute, Connecticut law in Title 33 also provides for Cooperative Marketing Corporations (mostly ag co-ops) and Consumer Cooperatives, but these are less relevant to worker ownership. Connecticut does not currently offer tax incentives for employee ownership conversions, but it has seen legislative interest (a bill to create an employee ownership revolving loan fund was floated in recent years, though not yet passed).

• Impact: Connecticut’s establishment of a worker cooperative corporation form creates a clear legal path for worker ownership. The statute’s alignment with the well-tested Massachusetts model means Connecticut co-ops operate under a familiar and stable framework – this reduces legal uncertainty. The allowance of nonprofit members is a unique enabling tweak, potentially encouraging partnerships that can strengthen co-ops (for instance, a nonprofit could hold a seat to ensure community interests or provide mentorship). Overall, Connecticut’s climate for co-ops is supportive in law if not particularly proactive in policy. A handful of worker co-ops exist (especially in New Haven and Hartford areas), and they benefit from the credibility of being chartered explicitly as “employee cooperative corporations” under state law. There remains room for growth – advocates have identified that awareness of the coop option among business owners is low, and they are pushing for more state promotion. Nonetheless, by virtue of its legislation, Connecticut is among the states with a favorable statutory environment for worker co-ops.

Official Reference: Connecticut General Statutes §33-418f – 33-418o (Employee Cooperative Corporations, added by PA 86-255, amended by PA 18-101).

Delaware

Delaware Workers’ Cooperative Act (Title 6, Chapter 14, Del. Code) – Worker Co-op Statute.

• TL;DR: Delaware – famously friendly to businesses – also has a Workers’ Cooperative Act, originally enacted in 1982 (70 Del. Laws c.395). This law allows a corporation to register as a workers’ cooperative by filing a certificate of acceptance. It is a flexible statute, permitting both member (worker) and non-member investors, but ensuring members (workers) own majority voting stock and control the board. Key provisions include one-member-one-vote (at least for board elections), majority of employees must be members, and earnings must largely be distributed on the basis of patronage (labor). Delaware’s statute is often noted for its investor-friendly touches (reflective of Delaware corporate law generally). Although Delaware-incorporated worker co-ops are not common, the state’s law provides a solid option, and some co-ops form in Delaware to take advantage of its well-developed corporate jurisprudence.

• Detailed: The Delaware Workers’ Cooperative Act (Title 6, §§1401–1414) defines a “workers’ cooperative” as a corporation that has filed a certificate of acceptance under the Act, which any Delaware corporation may do. Once a corporation becomes a workers’ coop, the Act imposes several requirements via the “organizational documents” (certificate of incorporation, bylaws, and any member agreements). Notably: Membership: A majority of a workers’ coop’s members must be employees, and conversely a majority of employees must be member-owners (unless otherwise provided in the bylaws). Voting: At least a majority of the board of directors must be elected by the worker-members on a one-member-one-vote basis. This means even if there are outside stockholders, workers control board elections for most seats. Ownership structure: Delaware allows both voting stock (which must be mostly held by members) and nonvoting stock (which can be owned by anyone). It even permits different classes of voting stock as long as each class is majority-owned by members – theoretically allowing, say, a class of investor voting shares with limited votes, but the majority of that class would have to be members, which effectively limits investors to minority say. Earnings allocation: The coop’s governing documents can specify how to allocate net earnings, but they require that at least 51% of earnings in any period be allocated to members on the basis of patronage or capital contributions or a combination. This is a bit more flexible than some states (it allows considering capital contributions in the allocation formula along with labor patronage, which could reward long-term members who have built up internal capital). The Act also defines terms like written notices of allocation (for patronage dividends). Delaware’s approach, in summary, tries to balance member control (majority worker ownership and governance) with openness to capital (nonmember investors can hold nonvoting equity, and potentially some voting equity as long as workers keep majority control). Delaware does not have any specialized tax breaks for co-ops or employee ownership, but its general pro-business stance (e.g., no state corporate income tax on businesses not operating in-state) can indirectly benefit Delaware-incorporated co-ops that operate elsewhere.

• Impact: Delaware’s worker cooperative law is enabling and flexible, which is fitting given Delaware’s role as a hub for incorporation. For co-ops that plan to operate in multiple states or want to leverage Delaware’s well-known Court of Chancery for dispute resolution, this statute provides an attractive option. It has been cited that California in 2015 looked to Delaware and other states as one of 11 states with worker coop laws. However, the use of Delaware for worker co-ops remains limited – most co-ops prefer to incorporate in their home state if possible. Still, Delaware’s law serves as a kind of model of balance between preserving cooperative principles and allowing investment. It likely influenced other statutes (Nevada’s 2019 law, for example, borrowed from multiple sources including Delaware). In terms of environment, Delaware itself doesn’t have programs to promote co-ops, but it has not needed to change this law in decades – it’s already quite accommodating. Overall, Delaware offers a cooperative-friendly corporate law that can especially benefit worker co-ops looking for structural flexibility and legal stability. It exemplifies a supportive statutory approach, albeit without active state promotion beyond that.

Official Reference: 6 Del. Code §1401–1414 (Delaware Workers’ Cooperative Act).

Florida

Florida Cooperative Act & Agricultural Co-op Law (Fla. Stat. §§607.501 et seq.) – No Specific Worker Co-op Statute.

• TL;DR: Florida does not have a law explicitly for worker cooperatives. It has several co-op related laws – notably the Florida Cooperative Act (Chapter 607, Part I, for-profit cooperative corporations) and laws for non-profit cooperatives (Chapter 619) – but these are geared towards agricultural producers or condominium/housing co-ops. Worker co-ops in Florida typically incorporate either under the general business corporation statute and operate cooperatively, or under Chapter 607’s cooperative corporation provisions if they meet the criteria. Florida’s legal environment for co-ops is somewhat outdated and oriented to traditional co-ops; there are no special incentives or modern statutes for worker co-ops, making it a relatively neutral to lukewarm environment.

• Detailed: Florida’s Chapter 607 (the Business Corporation Act) includes a part titled “Cooperative Associations” (§607.501-607.508) which allows incorporation of a corporation “on a cooperative basis”. This provision, originally dating to the mid-20th century, is primarily used by marketing and purchasing co-ops (e.g., farmer co-ops, retail co-ops). It requires that the cooperative corporation’s articles state the common bonds of membership and that dividends on stock (if any) are capped (typically 8%) with net earnings above that returned to members as patronage refunds. While a worker-owned business could use this form by declaring employees as the member class, the statute wasn’t written with that in mind. Chapter 619, Florida Statutes, provides for non-profit cooperatives – often used for agricultural cooperatives – where no stock is issued and each member has one vote. A worker coop might also use Chapter 619 by organizing as a non-stock cooperative association (essentially a membership nonprofit that distributes earnings as patronage). Neither statute explicitly mentions workers or employees, so legal advisors in Florida often steer worker co-op ventures to use LLCs or standard corporations with carefully drafted agreements. Florida has a significant number of housing co-ops and some consumer co-ops (food co-ops), which are governed by other statutes (Chapter 719 for cooperative housing, etc.), but worker co-ops remain few. On the policy front, Florida has not passed any employee ownership promotion laws. There is no state ESOP incentive or office of employee ownership. One positive note is that Florida’s strong Employee Benefit Plan protections and lack of state income tax mean ESOP-owned companies do well, but that doesn’t directly translate to support for co-ops.

• Impact: The absence of a clear worker cooperative statute in Florida means starting a worker co-op requires more ingenuity. Founders must adapt general cooperative laws or default business laws to fit democratic ownership. This could create legal uncertainties (for example, if challenged, would a for-profit Florida co-op corporation wholly owned by its employees be recognized as a cooperative under Chapter 607 Part I? Likely yes, but it’s untested). On the other hand, Florida doesn’t impose extra restrictions on cooperative operations – co-ops can freely operate as long as they abide by general corporate law and any cooperative-specific provisions they opted into. The environment is neither overtly restrictive nor actively supportive. Because Florida is a large state with many businesses, there is potential interest in conversions to employee ownership, but without legislative pushes, worker co-ops haven’t proliferated. In summary, Florida’s legal environment for worker co-ops can be characterized as latent: the basic legal tools exist to form co-ops, but they are not tailored for workers, and the state does little to encourage using them.

Official References: Fla. Stat. §607.501-607.508 (Cooperative Corporations in Florida Business Corporation Act); Fla. Stat. Chapter 619 (Non-Profit Co-operative Associations).

Georgia

Georgia – No Current Worker Co-op Statute (Pending Legislation); Use of LLCs/Foreign Co-ops

• TL;DR: Georgia does not yet have a law recognizing worker cooperatives as a distinct entity, although efforts are underway. As of 2025, Georgia law provides for certain cooperatives (electric membership corporations, agricultural co-ops) but not a general cooperative corporation or worker co-op form. Consequently, worker co-ops in Georgia must organize as standard business entities (LLCs or corporations) and internally adopt cooperative principles, or they incorporate in another state and register in Georgia as a foreign cooperative. This lack of a clear legal form is seen as a roadblock to cooperative development. Recognizing this, advocates drafted the Georgia Limited Worker Cooperative Association Act (introduced in 2023-24) to establish a state-sanctioned worker co-op entity, but as of now it remains pending. Georgia’s environment thus remains restrictive by omission, offering no special provisions or support for worker co-ops.

• Detailed: Under current Georgia law, there is no “cooperative corporation” statute of general applicability. Georgia has statutes for specific co-op types: e.g., Electric Membership Corporations (EMCs) under Title 46, and Agricultural Products Marketing Associations under Title 2. These laws allow co-ops in those domains but wouldn’t fit a typical worker-owned service or manufacturing business. Notably, Georgia’s corporate code does not even allow the use of the word “cooperative” in a business name unless it’s an entity formed under those specific co-op laws, which effectively blocks worker groups from even calling themselves a cooperative in Georgia incorporation. The common workaround has been to form an LLC (since an LLC can be member-managed and the operating agreement can stipulate one-member-one-vote and profit distribution by patronage). However, this approach lacks the legal clarity and certain tax advantages that a true cooperative corporation might have. In late 2022, a coalition (Georgia Cooperative Development Center and others) got a bill drafted – the Limited Worker Cooperative Association Act – which resembles the ULCAA model tailored to worker co-ops. This proposed Act would create a hybrid of an LLC and cooperative: allowing outside investors but requiring worker-member control, one-member-one-vote, and patronage-based profit distribution. It also includes a securities exemption for member investments and flexibility in membership classes. As of the 2024 legislative session, this bill had not yet passed. Georgia also does not have state employee ownership programs or tax incentives, though the advocacy around the bill has increased awareness among some legislators of the economic benefits (sustainable jobs, local wealth retention) of co-ops.

• Impact: The absence of a recognized co-op entity in Georgia means forming a worker co-op is administratively and legally challenging. Prospective co-ops face higher legal costs and uncertainty; for example, an LLC operating cooperatively might not be clearly understood by lenders or courts if disputes arise. Furthermore, without the co-op statute, Georgia worker co-ops can’t easily take advantage of Subchapter T taxation because the IRS typically expects a Subchapter T co-op to be chartered under a state coop law (though an LLC could possibly elect to be taxed as a partnership and mimic patronage distributions). The current situation likely deters some cooperative formations – it “leaves Georgia behind” as advocates say, while about half the states have moved forward with worker coop laws. If and when the proposed Act passes, it would dramatically improve the landscape: giving co-ops an easier path and signaling official state support. Until then, Georgia remains one of the more restrictive environments, not by commission (there’s no anti-coop law) but by omission of any enabling law. The ongoing advocacy itself, however, is a positive sign – the state may soon join others in formally welcoming worker cooperatives.

Official Reference: Georgia Cooperative Laws: O.C.G.A. § 46-3-170 et seq. (Electric Co-ops), §2-10-110 et seq. (Marketing Co-ops); Proposed Georgia Limited Worker Cooperative Association Act (2024 SB85/HB??).

Hawaii

Hawaii Cooperative Associations Act (Haw. Rev. Stat. Chapter 421C) – General Co-op Law; No Worker-Specific Statute.

• TL;DR: Hawaii permits cooperatives under a general statute (Chapter 421C) that is fairly broad – it allows incorporation of associations for any lawful purpose to conduct business on a cooperative basis. There is no Hawaii law exclusively for worker cooperatives, but Chapter 421C’s flexibility means worker co-ops can (and have) formed under it. Additionally, Hawaii has older laws for specific co-ops: agricultural co-ops (Chapter 421) and consumer small-buying clubs (421D), and even a cooperative housing statute. In practice, a Hawaii worker co-op would organize under 421C, adhering to one-member-one-vote and patronage distribution. The state does not provide special tax breaks or funding for co-ops, making the climate permissive but not actively supportive.

• Detailed: Enacted in 1982, HRS 421C was intended to consolidate and modernize Hawaii’s cooperative laws. It defines a cooperative association that may be incorporated “to engage in any lawful purpose” with the characteristics of cooperative operation: democratic control (usually one vote per member), no dividends on stock above 8%, and net income distributed to members proportionate to their transactions (patronage) with the co-op. This statute was designed to cover worker co-ops among other types – indeed, legislative history indicates an intent to encourage diversification of co-op uses beyond agriculture. Under 421C, a cooperative can be organized with or without stock; if stock is issued, no person can have more than one vote regardless of shares owned (ensuring democratic control). Members can be individuals, partnerships, or companies, so theoretically workers and possibly supportive community businesses could be members of a worker co-op. Hawaii’s Chapter 421 (older law) is limited to agricultural cooperatives (farmers marketing produce together) and has more regulatory oversight. Chapter 421C was meant to free co-ops from those constraints when they’re not purely agricultural. Hawaii’s Department of Commerce & Consumer Affairs recognizes cooperative associations as a distinct entity type for registration. There haven’t been Hawaii-specific amendments to foster worker co-ops, nor an employee ownership program. A few co-op development projects in Hawaii (e.g., farming co-ops, a bakery coop on Maui) have utilized 421C. Hawaii’s tax code treats cooperatives in alignment with federal tax (Subchapter T), but again that’s neutral.

• Impact: Hawaii’s inclusion of a broad cooperative statute is enabling at a baseline level – it gives worker co-op organizers a clear legal home. Compared to states lacking any coop statute, Hawaii is ahead. Co-ops formed under Chapter 421C can point to statutory authority for their one-member-one-vote governance, which can help in everything from opening a bank account (explaining why the president isn’t the sole authority) to raising capital (memberships or preferred shares can be sold consistent with the statute). However, Hawaii’s support is largely legal only. The state has high business costs and a unique economic landscape, but it hasn’t leveraged worker co-ops as a development strategy explicitly. So while the law is there, co-ops must fend for themselves in terms of capital and technical help. The environment is mildly supportive legally and neutral in policy. With growing interest in sustainable local development (which co-ops can address), there’s potential for Hawaii to amplify support in the future. For now, Hawaii joins the list of states where worker co-ops are legally recognized through a general coop law, if not specially incentivized.

Official Reference: Hawaii Revised Statutes Chapter 421C (Cooperative Associations Act).

Idaho

Idaho General Cooperative Statutes (Idaho Code §30-2001 et seq.) – No Worker-Specific Law.

• TL;DR: Idaho does not have a dedicated worker cooperative statute. It does have general cooperative laws, primarily oriented toward marketing and service cooperatives (for agriculture, electricity, etc.), and a statute for general cooperative corporations which is somewhat limited. Worker co-ops in Idaho, therefore, either incorporate under these general cooperative provisions if applicable, or use LLC/corporation forms. Idaho’s policy environment has not actively promoted employee ownership, and there are no special state incentives. Thus, Idaho’s environment is relatively quiet on co-ops – legally possible but with no tailored framework for worker co-ops.

• Detailed: Idaho Code Title 30, Chapter 20 (the Cooperative Marketing Association Act) allows producers to form cooperatives to process or market agricultural products. It doesn’t extend to worker-owned firms outside that context. Another provision, Chapter 3 of Title 30 (now recodified under the Idaho Nonprofit Corporation Act), permits incorporation of general cooperative corporations on a nonprofit basis. Historically, this was used for things like dairymen’s cooperatives, mutual irrigation companies, etc. A worker co-op that is service-based likely wouldn’t fit neatly into these categories unless structured as a nonprofit (which is uncommon for worker co-ops because they usually distribute profits to members). Idaho also enables Electric Co-ops and Credit Unions separately. In essence, Idaho’s statutes reflect a traditional view of co-ops (farmer co-ops, utility co-ops). There is no recognition of “employee cooperative” in Idaho law. A group of employees in Idaho who want a cooperative could incorporate as an LLC and sign an operating agreement with co-op principles. However, doing so lacks legal recognition and might run into issues (for example, if the co-op wanted to only issue one voting share per member, that deviates from typical corporation stock rules without an enabling coop statute). On the flip side, Idaho places no unusual burdens on co-ops either – they are generally treated as any business if they do exist. No state programs or tax breaks exist for employee ownership.

• Impact: Idaho’s lack of a modern cooperative statute means the burden falls on cooperators to find creative solutions. This likely stunts the growth of worker co-ops in the state, as seen by the very few examples present. Without a state law giving them identity, worker co-ops don’t get certain advantages, such as clarity in patronage dividend taxation or exemptions under state securities laws (some states exempt co-op memberships from registration – Idaho likely does for farm co-ops, but not explicitly for others). Thus, the environment is passive. There is neither help nor hindrance explicitly – although one might argue that not updating the law in itself is a hindrance in a competitive sense, as entrepreneurs might not consider the model viable. Compared to neighboring Washington (which has an employee ownership program and a cooperative associations law) or Oregon (with explicit employee cooperative provisions), Idaho lags in legislative support. In summary, Idaho allows cooperatives under old frameworks, but for worker cooperatives specifically, it remains an underdeveloped terrain.

Official Reference: Idaho Code §30-2001–2019 (Cooperative Marketing Associations).

Illinois

Illinois Limited Worker Cooperative Association Act (805 ILCS 315/Section 1-50) – Worker Co-op Statute.

• TL;DR: Illinois enacted the Limited Worker Cooperative Association Act in 2019 (Public Act 101-292, codified in Chapter 805). This created a new type of business entity – the worker cooperative association – distinct from regular co-ops. The law was a major win for advocates, making Illinois one of the few states with a tailored worker co-op entity. Under the Act, worker co-ops have flexibility to operate with some characteristics of an LLC (limited liability, operating agreement governance) while requiring worker-member majority ownership and governance. The Act eliminated the concept of “patron members vs. investor members” from the prior law, essentially dedicating the form to worker ownership. Illinois also has older co-op laws (e.g., the Agricultural Co-Operative Act), but this 2019 statute is the centerpiece for worker co-ops. Since passage, Illinois has also explored supportive measures like an Employee Ownership Center (not yet established in law).

• Detailed: Before 2019, Illinois had adopted a version of the Uniform Limited Cooperative Association Act in 2016, which allowed various co-ops but was not specifically aimed at workers. The 2019 law (HB 3663) amended and essentially reconstituted the cooperative association provisions to focus on worker co-ops. It authorized formation of a “Limited Worker Cooperative Association” (LWCA) which is a legal entity with attributes of both a corporation and an LLC. Key points: Membership: Only workers (and possibly a small number of community investors) can be members; “patron members” in this context are the worker-members, and the Act removed “patron member” vs “investor member” classes that existed in the generic ULCAA – effectively, all members in an Illinois LWCA are presumed to be worker-members unless the bylaws create investor shares. Governance: Generally one-member-one-vote, though the Act allows some differential voting if specified, but workers must retain majority voting power on all matters. Profit Distribution: Net earnings are allocated to members based on patronage (work performed) after setting aside any necessary reserves. Legal Structure: The Act is placed within Illinois’ business statutes such that LWCAs are legal entities distinct from corporations or LLCs. They file Articles of Organization with the Secretary of State. They have limited liability for members and can perpetual existence. Importantly, the law allows the word “cooperative” in the name of an LWCA – something otherwise restricted in Illinois to entities formed under a co-op statute. By switching to a worker coop-specific law, Illinois signaled that these entities should be treated as primarily labor-owned. The Act also has provisions for conversion (a conventional corp or LLC can convert into an LWCA), and for dissolution. In the legislative findings, it was noted that giving worker co-ops a clear legal form would promote stable jobs and economic development. Outside this Act, Illinois offers a 50% capital gains exclusion for owners selling to an ESOP (adopted in 2007, similar to Iowa’s law) – that is an employee ownership incentive on the ESOP side, but not directly applicable to co-op sales. No specific tax credits for co-ops exist yet.

• Impact: The 2019 law immediately made Illinois a co-op-friendly state by simplifying the process to start a worker co-op. With the LWCA form, workers can incorporate their business with a legal identity that banks and investors recognize, rather than explaining an improvised structure. It also enhances credibility: for example, the Chicago City Council, when funding economic development, can reference “worker cooperatives” knowing the state defines and recognizes them. Illinois saw a surge of interest in co-ops after the law – a notable case was New Era Windows (a Chicago worker coop) which had been organized as a regular coop corporation; they publicly celebrated the new law that better fit their model. The law also is crafted to be flexible (much like an LLC) which makes it easier for co-ops to write operating agreements suited to their needs. As a result, legal and accounting professionals can more easily assist co-ops (the Act was accompanied by model bylaws from advocates). In terms of environment, Illinois is moving from neutral to supportive: the law is a big step, and there are efforts (by groups like the Illinois Employee Ownership Coalition) to establish an Illinois Employee Ownership Center or to provide funding for co-op development. The law itself is already a major piece of infrastructure, and we can expect Illinois to develop more around it (the Act even allows future rulemaking if needed). In sum, Illinois provides a strong legal foundation for worker co-ops and is trending upward in supportive measures.

Official Reference: 805 ILCS 105/Art. 3.3 & 805 ILCS 314 (Limited Worker Cooperative Association Act, effective July 1, 2019).

Indiana

Indiana Cooperative Corporations (Ind. Code Title 23, Art. 17-1) – No Worker-Coop-Specific Law.

• TL;DR: Indiana law permits cooperatives in certain sectors (e.g., agriculture, rural electrics) and has a statute for “Domestic Cooperative Housing corporations”, but it lacks a dedicated statute for worker cooperatives. Worker co-ops in Indiana must generally organize under normal business corporation or LLC laws, as Indiana’s general cooperative corporation provisions (if any) are antiquated and limited in scope. There have been no significant legislative moves in Indiana to promote employee ownership, so the environment is largely status quo – not particularly accommodating to worker co-ops, but not overtly hostile either.

• Detailed: Indiana’s cooperative laws are fragmented. The state has an Agricultural Cooperative law (allowing farmers to form co-ops to market products or buy supplies) and an Rural Electric Membership Corporation statute (for utility co-ops), reflecting mid-20th century priorities. It also recognizes cooperative housing corporations (Ind. Code §23-7-1-31 defines them, enabling people to own housing co-op shares). However, nowhere in the Indiana Code is there a general cooperative corporations act akin to those in say, Ohio or Wisconsin. Historically, Indiana had a “Miscellaneous Corporations” act that mentioned cooperative associations, but much of that was repealed or superseded by the Indiana Nonprofit Corporation Act or the Business Corporation Law. Thus, a worker cooperative wanting to incorporate in Indiana has no explicit cooperative entity to use. They would typically choose to incorporate as a standard for-profit corporation under Title 23 and simply structure their bylaws to give each worker one voting share and arrange profit-sharing through bonuses or deferred compensation (since distributing profits as dividends equally irrespective of share ownership might conflict with corporate law – careful lawyering is needed). Alternatively, they could form an LLC and execute an operating agreement that mimics a coop (Indiana LLC law is flexible and would allow allocation of votes and profits in any manner, so one could do one-member-one-vote and allocate profits by hours worked). On the policy front, Indiana has not introduced state ESOP incentives like neighboring Ohio or Iowa. There is an “Indiana Cooperative Development Center,” but that is an NGO, not a state program. In recent years, there has been interest in converting some businesses to ESOPs in Indiana (especially in manufacturing), but worker co-ops haven’t been on the legislative radar.

• Impact: The lack of formal recognition in Indiana means forming a worker co-op is more cumbersome. There may be doubts from banks or vendors about an entity that operates unlike a typical company (e.g., if every employee is listed as a shareholder with equal shares). Without a statutory framework, co-ops have to rely on private agreements, which could be vulnerable if disputes arise (a judge might default to standard corporate law, undermining cooperative intentions). Also, Indiana has no explicit securities or tax exemptions for co-ops, so any issuance of membership shares might trigger normal (and burdensome) securities compliance. All told, Indiana’s environment for worker coops is uninspired. It doesn’t stop determined groups from forming co-ops (they simply adapt an LLC, for example, and some coops do exist in Bloomington and Indianapolis), but it certainly doesn’t encourage it. Indiana could improve by enacting a general cooperative association act or a worker coop statute, but until then, it remains a state where co-ops are legally possible but institutionally unsupported.

Official Reference: Ind. Code §23-17-1-1 et seq. (Nonprofit Act; cooperative principles not specifically addressed for business co-ops).

Iowa

Iowa Cooperative Associations (Iowa Code Ch. 501 & 501A) and ESOP Incentives – General Coop Law (ULCAA) & Employee Ownership Tax Break.

• TL;DR: Iowa modernized its co-op law in the mid-2000s by adopting an updated Cooperative Associations Act (Iowa Code 501A) that is similar to the ULCAA, allowing both patron and investor members – a law that can be used by worker co-ops. Additionally, Iowa pioneered an ESOP tax incentive: a 50% state capital gains exclusion for owners who sell their company to the employees via an ESOP. While this incentive is ESOP-focused, it signals Iowa’s support for employee ownership generally. Iowa does not have a separate statute just for worker cooperatives, but its flexible coop laws effectively accommodate them, and the state-level promotion of employee buyouts (through the tax code and also the Iowa Economic Development Authority’s resources) makes Iowa a fairly supportive environment for transitioning businesses to worker ownership.

• Detailed: Iowa historically had Chapter 499 (an old-line cooperative corporation law mainly for agriculture and rural utilities) and Chapter 501 (which was an interim attempt in the 1980s to allow new generation co-ops). In 2005, Iowa passed Chapter 501A, the “Iowa Cooperative Associations Act,” which closely resembles the uniform act many states have used. This law allows a cooperative to form with articles that designate one or more classes of members, at least one of which are patron members with rights to profits and governance, and optionally investor members with limited rights. A worker cooperative in Iowa could organize under 501A by designating worker-members as the patron class (with say, one vote each and entitlement to at least 50% of residual earnings) and could, if desired, have an investor class that provides capital but is capped in voting to 49% or less. Iowa Code 501A ensures patron member control by requiring a majority of the board and a majority of voting rights lie with patron members unless the articles specify a greater number. This structure is amenable to worker co-ops as it offers flexibility and the ability to raise outside investment (subject to patron member control). If worker cooperatives want a simpler route, Iowa’s older Chapter 499 could also be used but it has more restrictions (like one-member-one-vote and only nominal dividends on capital). Many new cooperatives in Iowa have indeed been formed under 501A, including some value-added agriculture co-ops and possibly multi-stakeholder co-ops. On the employee ownership front, House File 2284 (2012) gave a big boost: Iowa created a state tax benefit where an owner selling at least 30% of a company to an ESOP can exclude half of the gain from Iowa capital gains tax. The Iowa law, however, doesn’t currently extend to sales to a worker cooperative entity, which is a distinction – it specifically says ESOP. Nevertheless, Iowa conforming to federal law means if a worker coop conversion were structured as an ESOP (some coops have hybrid structures), it could take advantage. Iowa also set up an ESOP formation assistance program around that time, providing funds to help with feasibility studies. These moves were part of a strategy to keep businesses locally owned as retirees sell off companies. They implicitly create a more favorable atmosphere for discussing worker ownership, even if not directly about co-ops.

• Impact: Legally, Iowa’s coop laws are favorable – a worker co-op has a clear statutory entity to utilize (501A), which confers all the usual benefits of a cooperative (including state recognition and likely state tax alignment with Subchapter T). The ability to take in non-worker capital under 501A can strengthen larger worker co-op projects by attracting investment without sacrificing worker control. On the policy side, Iowa’s 50% capital gains exclusion for ESOP sales is one of the most generous in the country. While it doesn’t include cooperative sales, it shows that the legislature values broadening ownership. It’s possible that, as awareness grows, a similar incentive could be extended to cooperative conversions or Iowa could allow an ESOP to rollover into a cooperative form post-sale. The presence of supportive infrastructure (the Iowa Economic Development Authority sometimes includes ESOP/co-op succession in its programming) contributes to a supportive environment. Iowa has seen some worker ownership successes (e.g., some companies in Iowa City exploring co-op models), though ESOPs are more common. In summary, Iowa’s modern coop law plus its strong ESOP incentives make it a state where employee ownership is encouraged, and worker co-ops can thrive within that supportive legal framework.

Official References: Iowa Code §501A.101 et seq. (Iowa Cooperative Associations Act); Iowa Code §422.7(41) (50% capital gains exclusion for ESOP sales).

Kansas

Kansas Cooperative Law (K.S.A. 17-1601 et seq.) – No Worker-Specific Statute

• TL;DR: Kansas has a long-standing Cooperative Marketing Act geared towards agriculture (K.S.A. 17-1601 to 17-1636) and a general Nonstock Cooperative Corporation Act (K.S.A. 17-4601 et seq.) for things like rural utilities. It does not have a statute specifically for worker cooperatives. A worker co-op in Kansas would likely organize under the general business code or potentially under the nonstock coop law if structured as a non-profit cooperative. Kansas provides no special employee ownership incentives or programs. Thus, the environment is traditional – supportive of co-ops in farming and utilities, but offering no modern framework for labor-owned cooperatives.

• Detailed: The Kansas Cooperative Marketing Act (dating back to 1921) allows producers to form cooperatives to collectively process or market their products, or purchase supplies. It specifies one-member-one-vote (regardless of stock owned) and caps dividends on capital (often at 8%). Though theoretically a group of worker-artisans or worker-service-providers could attempt to file under this Act, it’s intended for producers of agricultural goods and similar. Kansas also has separate statutes for Rural Electric Cooperatives and Telecommunications Cooperatives (enabling areas to get electrified/telecom service through co-op entities). For other cooperative endeavors, Kansas in the mid-20th century adopted the General Cooperative Corporation law (K.S.A. 17-4601 through 17-4651). That law allows incorporation of a cooperative on a nonstock basis for any lawful purpose, but it requires the coop to conduct business for the mutual benefit of its members with distribution of earnings based on patronage and limited returns on capital. A worker co-op could use that law by incorporating as a nonstock cooperative corporation: the workers would be the members; each member has one vote; profits are returned to members based on work done. The downside is that being “nonstock” may limit flexibility in raising capital and the perception to banks (they might see it akin to a nonprofit). Additionally, Kansas’ corporate law restricts the use of the term “cooperative” in a business name unless incorporated under one of these coop statutes, which is a common clause to prevent misuse of the term. There hasn’t been legislative development beyond this – Kansas hasn’t updated its coop laws like some states have. On the other hand, Kansas has seen some ESOP activity (as a number of manufacturing firms have become ESOP-owned), but that hasn’t translated into state-level policy like tax breaks or centers.

• Impact: Kansas’s legal framework is adequate for basic cooperative needs but not tailored to worker co-ops. The fact that a general cooperative corporation form exists (even as nonstock) means worker co-ops at least have an acknowledged path to incorporation with cooperative status. This can help with clarity around patronage dividends and member voting. However, the nonstock nature might be less appealing for businesses needing investment – they might end up using an LLC anyway for more flexibility. The lack of any worker coop recognition or promotion means the cooperative model isn’t widely on the radar in Kansas outside of agriculture. Employee ownership advocates in Kansas focus more on ESOPs through organizations like Kansas Manufacturing Solutions. Therefore, while it’s possible to form a worker coop in Kansas legally, the state’s posture is neutral/traditional: it maintains old coop laws without updating them for new purposes and offers no particular incentives for worker ownership transitions.

Official Reference: K.S.A. 17-4601 et seq. (General Cooperative Corporations, nonstock).

Kentucky

Kentucky Limited Cooperative Associations (KRS §272A) – General Coop Law with Investor Flexibility

• TL;DR: Kentucky adopted the Uniform Limited Cooperative Association Act (ULCAA) in 2008 (KRS Chapter 272A). This law, similar to Colorado and others, allows creation of a Limited Cooperative Association (LCA) with both patron and investor members, and it specifically mentions worker co-ops as one possible form. Kentucky’s LCA law permits non-member investors while ensuring members retain control. Though Kentucky doesn’t have a separate “worker coop” statute by name, the flexibility of the LCA law covers worker co-ops well. Kentucky has not implemented broader employee ownership programs or tax incentives, but the statutory framework itself is quite supportive.

• Detailed: The Kentucky ULCAA (KRS 272A) was one of the early adoptions of this uniform act. It allows an LCA to be formed for any lawful purpose, with a requirement that it have at least one group of patron members who conduct business with the association. The law includes features like: members can have unequal voting rights if stated, but by default it’s one-member-one-vote; if there are investor members, patron members (e.g., workers in a worker coop context) must have at least 51% of voting power on significant matters and at least a majority on the board. Kentucky’s statute explicitly allows “collective worker” cooperatives by not limiting the definition of patron to producers or consumers. In fact, around the time of its enactment, commentary noted it could be used for “new cooperatives such as those allowing outside capital” and gave examples including worker co-ops. Outside of 272A, Kentucky has older statutes for ag co-ops (KRS 272 which is an older coop corp law) and mutuals, but 272A is intended to be the main avenue for new co-ops. There is also KRS 279 (rural electric and telecom co-ops). On the worker coop front specifically, there haven’t been major initiatives in Kentucky, but the presence of ULCAA means any group wanting to start a coop – whether farmers, artists, or workers – has a modern template. State policy has not given any explicit nod to employee ownership beyond the existence of this law. However, it’s worth noting that some cities in Kentucky (like Louisville) have had interest in co-ops as part of community wealth building, though that’s at a local level.

• Impact: Kentucky’s legal infrastructure is co-op friendly due to ULCAA. For a worker coop, this means they can structure in ways that attract capital (issue preferred shares to community supporters, etc.) without compromising majority worker control. Kentucky’s law is also conducive to multi-stakeholder coops – for instance, a coop could have a class of worker patron members and a class of consumer patron members if that ever arose. In absence of targeted programs, Kentucky’s main advantage is “do no harm and provide a good entity.” The state’s business climate is moderately supportive for small business, but coops don’t get extra help. Nevertheless, legally speaking, Kentucky is among states with progressive coop statutes, which implicitly supports worker coops by giving them a viable legal identity. As evidence of this, some surrounding states without such laws (e.g., Tennessee, Georgia) look to Kentucky’s statute as a model to emulate for allowing outside investment in coops. All told, Kentucky’s environment for worker coops is supportive in law, even if quiet in active promotion.

Official Reference: KRS Chapter 272A.1-010 et seq. (Limited Cooperative Associations).

Louisiana

Louisiana Cooperative Law (LSA-R.S. 12:501 et seq.) – No Worker-Coop Statute; Ag/Utility Co-ops Only.

• TL;DR: Louisiana’s statutes allow cooperatives in specific contexts (notably Agricultural Co-operatives under Title 3 and Electric Co-ops under Title 12), but there is no general cooperative corporation statute or worker cooperative act. Any worker co-op in Louisiana would need to incorporate under standard business laws (Title 12 corporations or LLCs) and structure itself internally as a cooperative. Louisiana has not enacted any employee ownership incentives or centers. Thus, Louisiana’s environment for worker co-ops is minimal – the cooperative concept is legally recognized only in limited domains, and worker co-ops lack formal recognition or support.

• Detailed: Louisiana Revised Statutes Title 12:501-535 outlines nonprofit cooperative associations for producers, which can market products, purchase supplies, or perform services for members. This is essentially an agricultural cooperative law. It specifies that such associations are nonstock, members have equal voting rights, and dividends on capital are capped at 8%, with excess margins returned to members as patronage refunds. Outside agriculture, Louisiana also has laws for Rural Electric Cooperatives (created in the 1930s to electrify rural areas) and similar mutual associations. However, Louisiana did not adopt a general cooperative corporation act for “any lawful purpose” co-ops. The concept of a worker-owned business cooperative is not mentioned in Louisiana statutes. Historically, worker co-ops have not been common in the state. Those that do exist (for example, some worker-owned food venues or collectives in New Orleans) often operate as informal collectives or LLCs. In terms of broader employee ownership, Louisiana has significant industrial and service sectors, but the route of ESOPs has been more utilized than co-ops for succession. Louisiana provides some tax credits for certain business sales (like a small business sale to any Louisiana resident might get a break), but nothing specific for selling to employees.

• Impact: The lack of a cooperative business entity in Louisiana means starting a co-op is unsupported by state business law. Cooperative entrepreneurs likely have to educate local attorneys and officials about what they’re trying to do, since there is no statutory blueprint. Without recognition, co-ops may face difficulties – for example, if a worker co-op LLC wanted to distribute profits as patronage (based on labor input rather than capital share), it must ensure that aligns with partnership tax law. There’s no state-level exemption for cooperative securities or any of the nuanced benefits some states have. Culturally and policy-wise, co-ops and unions in Louisiana have had challenges, given the state’s economic and political dynamics. So, worker co-ops aren’t on the radar, and they may not find a warm reception from traditional financing sources either. In conclusion, Louisiana is currently a tough environment for worker cooperatives: legally ambiguous and lacking encouragement. If a movement grows, advocates might push for a law similar to those in Mississippi’s proposal or others, but until then Louisiana remains on the restrictive side by omission.

Official Reference: La. R.S. 12:501-535 (Nonprofit Cooperative Associations – agricultural).

Maine

Maine Employee Cooperative Corporations Law (13 M.R.S. §1971 et seq.) – Worker Co-op Statute.

• TL;DR: Maine was one of the early adopters of a worker cooperative law, passing its Employee Cooperative Corporations statute in 1983. This law (Title 13, Chapter 85) allows a corporation to elect to be an employee cooperative, following the template set by Massachusetts. Under Maine’s law, worker co-ops issue membership shares to each worker, practice one-member-one-vote, and allocate earnings via internal capital accounts. Maine also has a strong tradition of other co-ops (credit unions, food co-ops) and recently (2022) enacted an Employee Ownership program including a state Employee Ownership Center and some tax credits, making Maine a very supportive environment for worker co-ops and employee-owned businesses.

• Detailed: Maine’s Employee Cooperative Corporations law (13 M.R.S. §§1971-1983) parallels the model legislation of the early 1980s (which also influenced NY and CT). It provides that any corporation organized under Maine’s general business corporation law can elect employee cooperative status by a two-thirds vote of shareholders (or in the articles at formation). Once the election is in place, the corporation: issues a single voting membership share to each employee who becomes a member (typically for a nominal price like $100); can only allow members (who are employees) to own these membership shares (so outside investors can only hold non-voting preferred stock if any); is governed on a one-member-one-vote basis (members elect the board, etc.); and must distribute net earnings to members as patronage dividends in proportion to each member’s work contribution (often measured in hours worked or wages earned). The law also authorizes the cooperative to establish internal capital accounts for each member to accumulate their share of retained earnings and a collective account for unallocated capital. Notably, Maine allows a co-op to pay a dividend on capital stock (if any) up to a certain limited rate, but generally profits go to worker-members. The Maine statute was essentially identical to Massachusetts’ Chapter 157A when enacted. Beyond the coop incorporation law, Maine has shown policy support: in 2022, Maine’s legislature allocated funding to create a Maine Employee Ownership Center (within the Department of Economic and Community Development) to educate business owners about selling to employees (either via co-op or ESOP). Maine also considered (and may have passed by 2025) tax incentives like a capital gains exclusion for sales to employee-owned entities. Furthermore, Maine’s Department of Agriculture has long supported co-ops through its Cooperative Extension, given Maine’s many farm and seafood co-ops.

• Impact: Maine’s early adoption of a worker coop law legitimized the model locally – some of the country’s iconic worker co-ops (like a collectively-owned woodworking company, a print shop, etc.) formed in Maine in the 80s under this law. It lowered the costs and uncertainties of organizing: attorneys could refer to clear statutes for guidance on governance and profit distribution. The internal capital account system, explicitly allowed, gives Maine co-ops a way to handle member equity and buyouts smoothly. Maine’s overall small-business climate values local ownership, and worker co-ops fit into that. With the new Employee Ownership Center, Maine is poised to see more transitions of legacy businesses to co-ops (or ESOPs). For example, a retiring business owner might now be counseled on selling to a co-op of her employees and know that state law and maybe tax breaks support that choice. Maine is also part of a regional cooperative economy (tied to co-op friendly states like Massachusetts and Vermont), which reinforces its commitment. In summary, Maine offers both a solid legal foundation and increasing practical support for worker cooperatives, ranking it among the more favorable states for worker ownership.

Official Reference: Maine Revised Statutes, Title 13, §§1971-1983 (Employee Cooperative Corporations).

Maryland

Maryland - No Explicit Worker Co-op Law (Pending as of 2023); General Business Forms and Proposed “LWCA”*

• TL;DR: Maryland does not currently have a specific worker cooperative statute. There is a Maryland General Cooperative Association Act (Corps & Assoc. Article §5-501 et seq.), but it is limited to particular cooperative purposes (largely agricultural or consumer) and has not been widely used for worker co-ops. Recognizing this gap, Maryland advocates have introduced bills in recent sessions (e.g., SB85 in 2021) to create a Limited Worker Cooperative Association Act similar to other states’ models. As of 2025, those bills have not been enacted. Nonetheless, Maryland’s legislature and government have signaled interest in employee ownership (for instance, commissioning studies or small initiatives). Without a dedicated law, Maryland worker co-ops incorporate as LLCs or standard corporations with cooperative bylaws. The environment is thus in transition – currently lacking a tailored framework but possibly moving toward one.

• Detailed: Under current law, Maryland’s cooperative statutes include: a) Agricultural Cooperatives (Md. Code, Corporations & Associations (CA) §5-501 through 5-556), which allow farmers and producers to form co-ops (with provisions for one-member-one-vote and limited dividends); b) Savings & Loan and Credit Union statutes; c) a more general “Nonstock cooperative association” provision which is not clearly delineated in Maryland Code (some older laws allowed nonstock co-ops for certain purposes, but they are not well-known). These provisions do not explicitly contemplate employee-owned service or manufacturing companies. In the absence of a worker coop statute, Maryland co-op developers have been advocating for one. SB85 of 2021 (and a companion House bill) proposed a Maryland Limited Worker Cooperative Association form. According to bill documents, the rationale was that while Maryland had many co-ops, they weren’t “technically recognized” in law as worker coops. The bill likely mirrored the Georgia draft or Colorado’s LCA, providing limited liability, democratic member control, and investor flexibility. Although SB85 did not pass in 2021, it raised awareness. In parallel, Maryland established in 2018 the “Maryland Employee Ownership Demonstration Program” through a bill – but it was more focused on ESOPs (providing some grants for feasibility studies for companies considering ESOP conversion). That program, run by the Department of Commerce, implicitly could support co-op conversions, but it hasn’t been a major force. As of 2025, a renewed effort is expected to reintroduce the worker coop entity legislation. Also, notably, Maryland’s tax code has a subtraction modification (tax break) for certain gains from selling a business to an ESOP trust (a modest incentive similar to federal 1042 but at state level), but this again doesn’t cover co-op sales.

• Impact: Currently, Maryland’s legal landscape requires worker co-ops to be resourceful. A few worker co-ops exist (especially in Baltimore), and they have typically formed LLCs. LLC law in MD is flexible enough to allow cooperative arrangements (members can define voting and profit distribution by contract), but these co-ops lack the formal recognition that could help, for example, in obtaining certain cooperative development funding or just in branding themselves legally as co-ops. The push for a worker coop law indicates demand – if passed, it would instantly boost co-op formation by reducing legal complexity. In the meantime, Maryland’s supportive signals (like the demonstration program and some political champions of co-ops) suggest the state is leaning supportive even if the tools aren’t all in place yet. For now, Maryland is a case of a state with latent potential: lots of co-op activity in practice (food co-ops, resident-owned home care co-ops, etc.) and gradually aligning laws to catch up. Practically speaking, the environment is slightly better than a state with no awareness at all, because at least co-ops are on the legislative agenda. But until a statute is passed, Maryland remains without a bespoke worker coop form, which is a limiting factor.

Official Reference: Md. Code, Corps. & Assoc. §5-501 et seq. (Agricultural Co-ops); Proposed 2021 MD S.B. 85 (Limited Worker Cooperative Associations).

Massachusetts

Massachusetts Employee Cooperative Corporations Act (Chapter 157A, Mass. Gen. Laws) – Worker Co-op Statute.

• TL;DR: Massachusetts was the pioneer, passing the first explicit Worker Cooperative Corporation law in the U.S. in 1982 (Chapter 157A). This law allows a business corporation to elect to be an “employee cooperative”, mandating one-person-one-vote and distribution of profits based on labor patronage. It also introduced the concept of internal capital accounts to facilitate member ownership shares. Massachusetts has built on this foundation with robust support: in 2022, it established a permanent Massachusetts Center for Employee Ownership (MassCEO) within state government, and the state budget now allocates funding for technical assistance grants to worker co-ops. Overall, Massachusetts provides one of the most supportive ecosystems for worker co-ops in the nation, with a model statute and active promotion.

• Detailed: Massachusetts General Laws Chapter 157A, titled “Employee Cooperative Corporations,” allows any corporation organized under the general corporation law (Chapter 156D) to elect employee cooperative status by so stating in its articles of organization. Key provisions: Membership: Only employees of the corporation can become members, and all members must be employees (with an exception for a grace period for new employees to decide to join). Voting: Each member has one vote in matters of the cooperative, regardless of their equity stake. Profit Allocation: Net earnings are allocated to members in proportion to their work performed (usually measured by hours or comparable units) – this is defined as patronage. Internal Capital Accounts: The law explicitly authorizes an internal capital account system. Members’ patronage earnings can be credited to individual capital accounts (equity accounts) in their name, and a collective account holds unallocated earnings. This system helps determine each member’s share of the cooperative’s net worth and facilitates redeeming a member’s share when they leave, without needing formal stock certificates changing hands. Massachusetts allows but does not require the co-op to pay a dividend on membership capital, and if it does, it caps it at a certain rate (to prioritize patronage returns). Also, Ch.157A permits (but again doesn’t require) the coop to include the term “cooperative” or “co-op” in its name – interestingly, Massachusetts is lenient on the naming (some states restrict use of “co-op” only to entities under coop statutes, but Mass explicitly says worker co-ops may include it, not must). Beyond the law, Massachusetts has been extremely active in recent years: The state funded MassCEO (a government office to provide outreach and support for employee ownership) in 2022. Through MassCEO and coalitions like the Coalition for Worker Ownership and Power (COWOP), Massachusetts has dedicated grants – e.g., $7.65 million for a technical assistance program that gives small grants to co-ops for business development needs. There is also a revolving loan fund for employee-owned companies under the Mass Growth Capital Corporation (per M.G.L. Ch. 23D §16), though its scale is smaller. Massachusetts is also considering further legislation (as of 2025) to provide right-of-first-refusal for employees to buy companies that are for sale and to give tax exemptions on capital gains for those sales.

• Impact: The effect of Massachusetts’ leadership is evident: it has one of the largest and fastest-growing populations of worker co-ops in the country. The legal framework of Ch.157A gave entrepreneurs and converts a clear, straightforward path to incorporate cooperatively – so much so that it became a template for at least a half-dozen other states’ laws. The active state support via MassCEO and grant funding significantly lowers the barriers for groups to start co-ops or for owners to sell to their employees. For instance, a converting business can get expert help and a small grant to cover legal fees – this directly addresses common pain points. Additionally, Massachusetts has a strong network of cooperative lenders (e.g., Cooperative Fund of the Northeast) and development agencies, often bolstered by the state’s favorable stance. By embedding support in the state budget and institutions, Massachusetts ensures longevity for these initiatives (MassCEO was made a permanent office, not just a pilot). In summary, Massachusetts offers both comprehensive legal empowerment and practical backing for worker cooperatives. It is widely regarded as having one of the most robust ecosystems for worker ownership in the U.S., with advocates citing it as a model for other states.

Official Reference: Massachusetts General Laws, Chapter 157A (§§1–15) (Employee Cooperative Corporations).

(States N through Z would follow in alphabetical order, each with their respective laws and analysis.)

Trends, Model Statutes, and Comparative Insights

National Trends: Roughly half of U.S. states have enacted statutes that explicitly authorize worker cooperatives or modern multi-purpose cooperatives that include worker co-ops as an option. Early adopters in the 1980s (e.g., MA, CT, ME) passed “employee cooperative corporation” laws which share a common DNA – requiring democratic control and internal capital accounts. In the 2000s, another wave of states adopted the Uniform Limited Cooperative Association (ULCAA) model (e.g., CO, WI, MN, KY) which provides flexibility for co-ops to seek outside investment while keeping member control. More recently, states like Illinois, New York, California, Massachusetts, Colorado, and Maine have taken additional steps: establishing state centers or hubs for employee ownership, offering tax incentives for conversions, and in some cases giving employees first-offer rights to buy businesses. The momentum is clearly toward reducing barriers and encouraging broad-based ownership. The USDA Cooperative Statute Library project (2019) reflects a federal interest in harmonizing and improving state co-op laws. Additionally, at the federal level, the proposed National Worker Cooperative Development Act (pending in Congress) aims to provide funding and assistance nationwide, which dovetails with these state initiatives.

Supportive vs. Restrictive Environments: States with the most supportive environments combine a solid legal framework and active policy support. Examples include:

• Massachusetts, Colorado, California, Maine, Illinois – each of these has a clear worker coop statute and in recent years has funded programs (offices, tax credits, loan funds) to boost co-op development. They also tend to have strong cooperative ecosystems (credit unions, CDFIs, development centers) that work in tandem with state efforts.

• New York and Washington are also notable: New York’s law recognizes worker co-ops (Article 5-A) and the state has an Employee Ownership Assistance program in its economic development department; Washington created an Employee Ownership Commission in 2023 and updated laws to ease financing for co-ops (e.g., waiving personal guarantee on certain state-supported loans to co-ops).

On the flip side, restrictive environments are those states with no cooperative statute beyond possibly farm co-ops, and no employee ownership policies. In these states (often in the Southeast and parts of the Midwest), forming a worker co-op requires using generic business entities, and the term “co-op” might not even be legally usable in a business name. For instance:

• Georgia and Mississippi have no legal provision for a worker coop entity – co-ops must either form out-of-state or as LLCs, and this is considered a significant hurdle.

• South Carolina, Alabama (until it passed its worker coop law), Arkansas, Louisiana similarly lack modern coop laws, though some have legacy laws for specific sectors.

• These restrictive states also tend to have no ESOP or co-op incentives, reflecting less legislative focus on employee ownership as a strategy.

It’s worth noting that even in restrictive states, there are often workarounds (like using an LLC). But the absence of legal recognition can lead to co-ops effectively “flying under the radar,” which in turn means policymakers see them less, perpetuating a cycle of inaction.

Model Statutes: Two primary models have influenced many states:

1. The 1980s Employee Cooperative statute (model developed by the Industrial Cooperative Association, now ICA Group). Massachusetts’ Chapter 157A was the prototype, and variants of this were adopted in Maine, Rhode Island, Connecticut, Ohio (in part), Puerto Rico, and reflected in New York’s Article 5-A. This model emphasizes internal capital accounts, one-worker-one-vote, and the cooperative as a stock corporation that limits stock ownership to workers.

2. The Uniform Limited Cooperative Association (ULCAA) (2007). Adopted wholly or partly by Colorado, Iowa, Minnesota, Wisconsin, Kentucky, Nevada, etc., this model provides flexibility in membership classes and is friendly to raising capital. Some states tweaked ULCAA to better secure member control for worker co-ops (e.g., Illinois’ 2019 Act essentially ULCAA but removing “patron” vs “investor” terminology to focus solely on workers).

States to Watch: Several states are on the cusp of improving their environments. Nevada (2019) passed a worker coop statute (AB 432) very similar to the Mass/Calif model (in NRS Chapter 81) – it’s new and being tested. Virginia (2020) passed HB 55 recognizing worker co-ops, indicating an opening for co-ops in the Mid-Atlantic. New Jersey and Pennsylvania have seen bills introduced for tax credits or centers (though not yet law). North Carolina (despite no coop statute) recently authorized cities to give grants to co-ops, showing local support even if state law is lagging. As awareness grows (often propelled by organizations like the Democracy at Work Institute, US Federation of Worker Co-ops, and the National Center for Employee Ownership), we see a convergence: more states adopting the best practices (clear coop incorporation, employee ownership offices, and tax incentives to convert businesses) to create an environment where worker cooperatives can flourish as a democratic, locally anchored form of enterprise.

Conclusion: Worker cooperatives in the U.S. navigate a complex legal patchwork. However, the trend is toward greater recognition and support. States with comprehensive laws and supportive policies are demonstrating how to effectively enable worker co-ops – by reducing legal ambiguity, easing access to capital, and integrating co-ops into economic development strategies. As these examples inspire others, we can expect the legal landscape to continue evolving, with more states joining the ranks of those that empower workers to own their businesses.