Homeland Grocery

United Food and Commercial Workers (UFCW) negotiated an ESOP (Employee Stock Option Plan) with union corporate governance role and representation for new stores.

UFCW negotiated an ESOP with a significant union role in corporate governance and representation agreement for new stores. Since 2011 this 100% employee-owned chain of 76 grocery stores, employing over 15,000 people, has already expanded to 80 unionized stores.

In 2011 Homeland Acquisition Corp. (HAC), a grocery store chain in Oklahoma and Texas, and United Food and Commercial Workers (UFCW) Local 1000, partnered to transition the company to 100% employee ownership using an Employee Stock Ownership Plan (ESOP). As part of the transition, HAC and UFCW negotiated a new contract and the terms of the ESOP, as well as a number of corporate governance provisions for the new company. When the deal closed at the end of 2011 there were 76 stores. Now there are 80 stores, all of them union.

Aided in negotiations by several financial and legal advisors, including Attorney Deborah Groban Olson, UFCW and HAC agreed on:

1. A new defined benefit plan;
2. ESOP participation for union members;
3. A significant role for the union on the board of directors;
4. A representation agreement covering new stores opened by the company.

According to UFCW Local 1000 President Ricky Burris:

“UFCW members are excited to own a majority of HAC stock and are eager to work with management to achieve continued success for the company. We take seriously the responsibilities that come with ownership, representation on the board of directors, and a voice in major corporate decisions.”

Creative Community Pathways (CCP)

Creative Community Pathways (CCP), has created co-ops among the families of the children for whom it provides “individualized success plans. Families work together to get children to and from school and the many supportive resources in their program. The co-ops are organized and supported by CCP staff. Phyllis Williams, CEO of CCP developed these co-ops with advice from Atty. Olson. (More details coming soon.)

High Five Co-op Brewery

In 2013, Atty. Deborah Groban Olson helped this group of workers and consumers incorporate and they are now seeking members. High Five, is the first worker and consumer multi-stakeholder co-op created under Michigan’s Consumer Co-op Act.

“For thousands of years people have met with not much else between them besides a beer. And for just as long, beer has been a beverage of the people—a true democratic beverage. What more appropriate than to unite beer with the Co-operative model? With the shifting attitudes toward beer in United States, as well as the world, it only makes sense to work among the principles of a Co-op. High Five Co-op Brewery is not the first to make this step, and we will hopefully not be the last. While we are in formative stages, the future is exciting, and we invite you to join us, for there is work to do, beer to drink, and dreams to shape. We are proud to announce that as of today, the State of Michigan approved our Articles Of Incorporation and High Five Co-op Brewery, Inc. is now a Co-op. You can view our Articles Of Incorporation here. Our Bylaws have also been finalized, and we will be releasing them online shortly. This is fantastic progress and we can’t wait to announce more coming very soon.” -Quote from High Five Co-op Brewery Website.

Mustard Tree Co-op

Mustard Tree Co-op is a 23 unit non-profit housing cooperative in Detroit’s Island View neighborhood, originally founded by Church of the Messiah. Attorney Olson helped them obtain their independent IRS 501(c)(3) status in the 1980’s and has represented them ever since.Church of the Messiah is an Episcopal church on Detroit's east side, an economically challenged area. When the neighborhood began to deteriorate in the late 1970's Pastor Ron Spann and parish members looked for ways to improve it. The apartment building at 215 E. Grand Blvd., immediately across the street from the church, was a source of neighborhood problems, including drugs and prostitution. In 1977, Richard Cannon became president of the Church of the Messiah Housing Corporation, through which the church bought the 23-unit building, andbegan renting to neighborhood people. It was always the desire of the Housing Corporation that the building be a co-op.In 1990 the building residents created the Mustard Tree Co-op and entered into a long-term mortgage to buy the building from the Housing Corporation for $650 per month.In 1997, the Housing Corporation wanted to sell the building outright to the residents’ co-op. It was then that the residents contacted Attorney Deborah Olson. Over the years, the co-op had retained 5% of the rent in a long-term capital improvement fund, which, by the time of the purchase had the $50,000 needed to purchase the building from the Housing Corporation.The co-op needed to formalize its existence and wanted to seek tax-exempt status. Atty. Olson successfully filed with the IRS for 501(c)3 tax-exempt status for Mustard Tree Co-op. She assisted the co-op in purchasing the building from the Housing Corporation. As a tax-exempt, non-profit the co-op is eligible for certain federal housing programs. However, the members do not build individual equity in the co-op.Since 1997, Atty. Olson has served as general counsel to the Co-op, dealing with a wide variety of issues.Sheree Walton, long-time president of Mustard Tree Co-op says, “The residents were overjoyed when we became owners of Mustard Tree through the co-op. We had many challenges and believed that co-op ownership was vital to preserving our community. We were looking for an attorney who had experience and was concerned about us. Atty. Deborah Olson has always been responsive, dedicated, thorough and cared about the needs of our members. She involved us as clients in every step of our legal work and we learned a great deal. She helped us do things the right way. She has represented us or almost 20 years and we would strongly recommend her to others.”

Fulton Tool and Die Co.

Example of Sub S ESOP Benefits

Complete buyout of a C corporation shareholder, followed by a corporate S election.

Mr. Fulton owns 100% of the shares of Tool & Die, Inc., a Sub Chapter C company worth $6 million. Mr. Fulton is getting older and would like to sell his company and enjoy the proceeds. If he sells to an outside buyer, he will pay taxes, perhaps at the 20% rate, on his net long-term capital gain. If his original basis in the stock was -0-, he would pay $1,200,000 and keep $4,800,000 after taxes.

If the company, instead of an outsider, buys him out by borrowing money or using cash reserves, Mr. Fulton faces the same tax sting. In addition, the payments will not be deductible to the company and might impoverish it (perhaps making it impossible for the company to complete a gradual buyout).

These problems can be avoided if Mr. Fulton creates a company ESOP. The ESOP finances the purchase with company contributions, or by borrowing from a lender through the ESOP. The company typically would guarantee the loan. The purchase price of the stock is set by an independent appraisal. If Mr. Fulton initially sells at least 30% of outstanding company stock to the ESOP, he can “rollover” the proceeds of the sale into stock or bonds in U.S. companies and avoid paying any tax on the proceeds unless and until he sells that “replacement” stock. Any replacement stock that remains in his estate until his death may get a stepped-up basis (depending on applicable estate tax laws in the year of death). Where the stepped up basis applies, the capital gain is never taxed.

The company deducts the full amount of contributions to the ESOP used to buy Mr. Fulton’s stock, or to make interest and principal payments, within limits, on a loan used to buy Mr. Fulton’s stock. If the company is taxed at a corporate rate of 36%, this deduction would mean that $2,160,000 (36% of $6 million) of the cost of cashing out Mr. Fulton would be paid out of company funds that otherwise would have been used to pay taxes.

The stock is held in trust for employees. When they retire or leave the company they are paid their vested and allocated stock or the cash value of that stock, usually in installment payments over five years (or longer if the company stock was purchased with borrowed funds).

There are several permissible vesting schedules so that employees who leave with less than five years of service need not get any stock upon termination.

The net result is:

• Mr. Fulton defers (and perhaps avoids) $1,200,000 in taxes on his capital gains. If he wishes, he can retain control over his company while he gradually sells to an ESOP over many years.
• The company saves more than $2.1 million by deducting the $6 million in ESOP contributions used to buy stock. This savings over the years should strengthen the value of company stock as the buyout proceeds, and enhance the ability of the company to raise the cash needed to purchase the owner’s stock.
• The employees become beneficiaries of a trust that holds stock in their company. They each have an individual stock account in that trust.
• If the Company then makes an S election after all Mr. Fulton’s stock has been sold to the ESOP, the Company will not pay income taxes on its retained earnings as they accrue in the ESOP. Rather it will make distributions from the ESOP to participants upon their termination of employment, at which time the employees will owe taxes on the value of the ESOP stock.

"Preserving the Social Mission Beyond the Founder" - Deb Olson moderates panel with Bill Carris, Paul Saginaw & Ron Maurer at NCEO conference April 9, 2014

Atty. Deb Olson  developed and will moderated a panel at  which founders and leaders of two very different social enterprises discuss what they have done and are doing to ensure that the successful social enterprises they built, Carris Reels and Zingerman's, will remain both successful businesses and social enterprises when their successors run the business. The panel will be April 9, 2014, at t the upcoming National Center for Employee Ownership annual conference in Atlanta, GA.Carris Reels, a company with 715 employees  and 15 plants in 8 states,  also known as the "Carris Corporate Community" is a manufacturer of all types of reels, headquartered in Rutland, VT.   The business succession transition for Carris Reels started in 1993, when Bill Carris began to sell his family's interest in the company to their employees through an employee stock ownership plan (ESOP). Carris Reels is now owned 100% by the ESOP.Zingerman's, a business with 600 employees, best known for its world renowned deli in Ann Arbor, is actually a group of 8 (soon to be 9) cooperating businesses known as the "Zingerman's Community of Businesses", which was started by 2 partners, Ari Weinzweig and Paul Saginaw. It  is now run by a group of 18 partners who manage the various businesses and make policy for the whole group. All the partners began as  Zingerman's employees, and developed their Zingerman's businesses through the "Path to Partnership" with help from the founders. The partners group is now working through a business succession plan with the founding partners. While the exact form it will take is not yet determined, the group is interested in creating a co-op style of particpative worker ownership. Ron Mauer chairs the Zingerman's partners group.

Community-building thru ministry and community-based businesses - Church of the Messiah, C2BE and Zingerman's

Last Saturday, Dec. 7, 2013, the Center for Community Based Enterprise (C2BE) provided 30 members of Zingerman's Diversity and Inclusion Committee with a tour of the community wealth building programs at Church of the Messiah and initiated an ongoing dialogue with youth and adult church members and leaders of the C2BE- which is located at the church) about what needs to be done to  restore community and rebuild  neighborhoods like the Island View neighborhood on Detroit's east side. The church, Zingerman's and C2BE share a strong belief in the ability to make change by supporting and enlisting the talents of every individual to build community well-being and wealth. Following is a recent interview of Pastor Randolph.

"Interview of Reverend Barry Randolph, Pastor, Church of the Messiah, Detroit, Michigan by Steve Dubb, Research Director, The Democracy Collaborative, October 2013

Reverend Barry Randolph is pastor of Church of the Messiah, a Detroit church that has developed four social enterprises to date, one of which is a private community-based business and three of which are owned by the Church directly. The Church has also sponsored a CDC for the past 35 years. In addition to being a pastor, Rev. Randolph is also a leader in the community having joined other groups in coalitions, including church consortia and a public safety group. Barry is also on the board of the Center for Community Based Enterprises (C2BE). [Full disclosure: the interviewer is also on the Board of C2BE]. The Church, founded more than a century ago, found itself on hard times a decade ago, but under Rev. Randolph’s leadership, the Church has grown rapidly, becoming a leading community group in Detroit revitalization work.

 Could you talk about your background in small business and how you came to be pastor of the Church of the Messiah? " ...  (Read More) 

Mondragon Co-op Community puts workers first in Fagor bankruptcy - unlike Detroit bankruptcy

Unlike the US Bankruptcy Court in Detroit, and the Michigan Governor and Attorney General who chose not to protect worker pensions in the Detroit bankruptcy, a cooperative community of businesses  shows that their solidarity, in the form of funds from the other companies,  can support the workers with resources and jobs when faced with a major bankruptcy. Following are excerpts from the blog of  Michael Peck responding to an article in The Economist claiming that the Fagor bankruptcy severely tested the "real world" ability of community-centered business to survive. In fact, this difficult example is proof of the strength of economic solidarity. Michael  of the MAPA Group is the US representative  of the Mondragon Cooperative Group."The Mondragon Cooperative Group (“Humanity At Work” through Cooperation, Participation, Social Responsibility and Innovation, headquartered in the Basque region between Spain and France) is ranked as the world’s largest worker-owned industrial cooperative group but also as the top Basque industrial group, tenth in Spain with 80,000 personnel, a presence in 70 countries, and winner of the 2013 Financial Times “Boldness in Business” award. Mondragon’s 60-year mission is to generate wealth for society through values-centric and market competitive business development and job creation under the “one worker, one vote” cooperative framework where labor is sovereign and capital, while essential, is subordinate to sustaining job creation.Yesterday, Fagor Electrodomestics, which evolved from the original Mondragon household white goods manufacturing cooperative (ULGOR) to hold almost a third of its domestic sector market share for decades, was declared formally insolvent (859 million Euros in debt, 5,642 jobs at risk, 100,000 Euros left in the corporate account). Predictably, global media “punditcrats” have wasted no time in jumping on the “see, I told you so” bandwagon. Case in point, The Economist, “Trouble in workers’ paradise–...Also yesterday, Mondragon’s social mutual, Lagun Aro, announced it would propose a 1.5% raise in contributions from all members at Mondragon’s next General Assembly to support its role in providing additional unemployment benefits to displaced Fagor Electrodomestics worker-owners. This other news received only local media coverage and therein lies the conventional wisdom disconnect from the healing power of practicing metrics-based solidarity.  (Read More)  http://www.mapagroup.net/blog/#sthash.rUuF4pwM.dpufhttp://www.mapagroup.net/blog/