The Green Collar Community

Advancing green jobs and resilient communities through cooperative enterprise.

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Four Alternative Financing Options for Social Enterprises and Cooperative Businesses

Rising interest in social enterprises combined with increased opportunities for alternative financing (including crowdfunding, peer-to-peer lending, and microfinancing) has led to more possibilities for individual and institutional investors to finance businesses they really support.

R.P. Burrasca, Susan Grossberg, Anne Misak, and Jason Wiener recently published a whitepaper on the topic, “An Introduction to Financing for Cooperatives, Social Enterprises, and Small Businesses” to identify existing alternative financing options that can be especially attractive to low to moderate income business owners operating social enterprises and cooperative businesses. While the whitepaper was written specifically for the metropolitan Denver area’s Community Wealth Building Network, it discusses financing options and federal law that are generally applicable across the country.

The whitepaper highlights four areas of alternative financing:

  1. Debt financing from institutional lenders, including community development financial institutions (CDFIs), credit unions, the Small Business Administration and its Small Business Investment Company (SBIC) Program, and public banks.
  2. Crowdfunding in its various forms including donation crowdfunding, rewards-based crowdfunding, debt-based crowdfunding (microfinance loans, peer-to-peer lending, and peer-to-business lending), and equity-based crowdfunding.
  3. Equity financing for cooperatives from the cooperative’s patron-members and outside investors (non-members who own non-voting preferred stock). The Securities and Exchange Commission has in recent cases declined to enforce its general registration requirement with regards to cooperatives’ membership equity, taking the position that such investments from patron-members are not securities and do not need to be registered with the SEC.
  4. Funding from charitable foundations, including program related investment (PRIs), mission related investments (MRIs), and convertible grants.


Federal and state laws and regulations govern each type of financing. To further explore if an alternative financing might be the right option for your enterprise, consult with an attorney or drop by our next Resilient Communities Legal Cafe.

Ashley Poon is a second-year student at Boston College Law School and was a Summer 2015 GC3 law clerk.

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Making Waves: The Silver Tsunami and Employee-ownership Conversions

Over the next twenty years retiring baby boomers will be exiting the workforce in droves, a phenomenon often described as the “silver tsunami.” Baby-boomers own 66% of all businesses with employees in the U.S., and their retirement will cause the transfer of trillions of dollars in business assets. The open question is – to whom?

Some have predicted that these businesses will be gobbled up by private equity firms. But private equity may not be available to many small business owners, and even where it is, the private equity model – which seeks to purchase equity in a business and sell that equity at a 100% profit within three to five years – may not achieve many of the business owner’s core concerns. Given that private equity investors are looking to sell the business in a short time period, they cannot commit to core values, such as retaining the business’ identity, reputation or fulfillment of a community need. For small business owners who’ve devoted the majority of their working life to their company, and whose legacy is at stake, private equity might be an unsettling prospect. Fortunately, there exists an alternative that may help ensure the business’ long-term viability: selling to the employees as an employee-owned business.

Forming an employee-owned business can provide a succession plan that addresses many concerns of small business owners. For one, by opting to sell their business to their employees, who usually live in the community, business owners can help ensure that their business will remain rooted in the community. Second, selling a business to employees can actually help provide the business with a competitive advantage when compared with investor-owned firms operating within the same marketplace – for instance studies have indicated that workers are more productive in worker owned firms. Most importantly, selling to employees may provide an exit possibility for the great number of business owners who plan to fund retirement through a business sale but are unable to identify a potential buyer.

But while there are many potential benefits of employee-ownership conversions, perhaps the most striking and yet underutilized advantage has to do with taxes. Specifically, an underutilized provision ion the tax code – Section 1042 – enables business owners to defer all capital gains taxes when they sell their company to an eligible worker cooperative. For business owners on the verge of retirement, the prospect of both preserving their business’ legacy while simultaneously decreasing the tax burden from the sale of their business should be quite alluring. And Section 1042 can also allow the business owner to plan his or her exit, slowly over a period of years, or quickly under the appropriate circumstances. Here’s how it works:

Section 1042 allows business owners who have had an ownership stake in a company for three or more years to sell their companies to an eligible worker cooperative, and take the proceeds from the sale free of taxation. While only owners of C Corporations are eligible to take advantage of Section 1042, S corporations can easily elect C-status. So long as the owners have held an ownership stake in the business for more than three years, they will be eligible to sell their business under 1042. And, a recent IRS ruling suggests LLC owners can do the same.

To take advantage of Section 1042’s tax deferral, the business owner must take the proceeds from the sale and invest it in “qualified replacement property,” which includes stocks, bonds and other debt instruments of domestic corporations. So long as the business owner holds onto the replacement property, he or she will not be required to pay any tax on the proceeds from the sale. Thus the business owner could take some portion of the proceeds from the sale and create an investment portfolio, or add corporate bonds and individual stocks to his or her investment portfolio. The business owner would then only be required to pay the applicable tax rate on dividend or interest income from the property – typically the ordinary income tax rate for bonds and other debt instruments, and 15% for dividends – but no taxation on the property itself.

For the selling business owner, this could mean great savings, and may provide a great advantage over other modes of sale, such as an asset sale, or a non-1042 equity sale. For instance, if the business is taxed as a C corporation and sold as a collection of assets, the proceeds from the sale would be subject to double taxation – first at the applicable corporate tax rate, and then at the dividends tax rate when the company disburses the sales proceeds to the selling owner. This could potentially lead to a situation in which over half of the proceeds from the sale are taken as taxes. By contrast, using 1042 the selling owner can put off the capital gains taxes. Thus, even in situations in which an external buyer would offer more money for the purchase price, the selling business owner might end up receiving a lot less than he or she would under a 1042 sale. Further, even if the business is not taxed as a C Corporation, such as most LLCs or S Corporations, or if it is sold through a non-1042 equity sale, as in the private equity model, the proceeds of the sale would still be taxed at the long-term capital gains rate or higher.

A further benefit of 1042 cooperative conversions is that they enable the business owner to plan and execute the succession of his or her business over a period of years. Under Section 1042 once 30% of the business equity is transferred to the worker cooperative, the transaction that achieves the 30% transfer and all subsequent transfers to the worker cooperative, are eligible for tax deferral. A selling business owner, or owners, could thus transfer the initial 30% of stock to the worker cooperative, work with financial advisors to invest the proceeds, and gradually transfer the remainder of the business to the worker cooperative. This can be a huge benefit for the many small business owners that wish to sell their business as a partial source of retirement income because it can provide them the opportunity to ensure that their employees are properly-trained and prepared to manage the business in a manner consistent with the business’ identity and practices. And for businesses where the value of the business is deeply tied to the owner, it can allow the owner to expose the business’ customer base and clientele to the new management structure, thereby disentangling the value of the business from the owner.

For more about employee-ownership conversions, including a legal analysis of Section 1042, stay on the lookout for GC3, SELC and Project Equity’s forthcoming Legal Conversion Guide, which will be accessible at this site.

William Lisa is a graduating law student at Berkeley Law and an intern at the East Bay Community Law Center’s GC3 Clinic. He plans to work with companies creating employee share ownership plans (ESOPs) after graduating from law school.


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DIG Coop: Taking Ownership of Business and Water Conservation

Recently, NASA scientist, Jay Famiglietti, wrote an LA Times op-ed with a headline stating that California has one year of water left. Immediately causing great panic on the Internet, LA Times later corrected the headline to state that California has just one year of water stored. Regardless of whether California has one year of water left or just one year of water stored, we don’t need a NASA scientist to tell us that California needs to conserve more water.

Entering its fourth year of record-breaking drought, California continues to experience unusually high temperatures and historically low precipitation. As a result, the state’s groundwater and snowpack levels remain at all-time lows without a contingency plan in place. Although Governor Jerry Brown recently introduced a $1 billion package of emergency legislation targeted at combatting California’s drought, critics are clamoring for more.


DIG Cooperative, Inc. located in Oakland, CA (Credit: GC3)

dig logo

In his controversial op-ed, Famiglietti calls for the public to “take ownership of this issue” and actively engage in discussions and decisions surrounding our most important, commonly owned resource. Here at the Green-Collar Communities Clinic (GC3), we have been fortunate to provide assistance to DIG Cooperative, Inc. (DIG Coop), an Oakland-based worker-owned cooperative whose members are not only taking ownership of their business, but also taking ownership of water scarcity and conservation.

Established in 2005, DIG Coop is an innovative general contracting firm specializing in integrated water solutions for people and the environment. Responding to the ill effects of global warming, DIG Coop provides its clients—individuals and organizations alike—proactive strategies for more sustainable and efficient use of natural resources, specifically water. These strategies include rainwater catchment and greywater irrigation systems—two viable alternatives to the punitive fines that California has put in place for excessive lawn-watering.

Rainwater catchment systems harvest and reuse rainwater for various purposes including irrigation and indoor plumbing use. Through a DIG Coop rainwater catchment system, just an inch of rainfall can provide up to 600 gallons of water. Rainwater can be reused for washing machines, toilet flushing and landscape and garden irrigation. With proper filtration and sterilization, rainwater can also supply a home or development with potable quality water.

dig group shot

(L-R) Tondre, Niko, Javier, Maria and Anya of DIG Cooperative, Inc. (Credit: GC3)

Similar to rainwater catchment, greywater systems also harvest and reuse water. However, instead of rainwater, greywater systems reuse the wastewater from a home or development’s plumbing system. The system typically reroutes water from a shower, bathroom sink, or washing machine to irrigate a landscape or garden. More extensive systems can also filter and reuse greywater to flush toilets. On average, one home can produce over 30,000 gallons of greywater per year. To put this number in perspective, data shows that on average, California residents (including all businesses except agriculture) use 196 gallons of water per day, or about 71,000 gallons of water per year. A greywater system can cut that figure down by at least 40 percent.

Adding to the excitement is the fact that DIG Coop pushes beyond traditional business ownership to create a democratic workplace in which each of the coop’s five members have a vote and share in the profits. As both workers and owners of the business, members have a say in all aspects of the coop ranging from how much they get paid to selecting client projects. As a result, members are just as invested in the business’ success as they are in its mission.

Through cooperative ownership and its commitment to ecological regeneration, DIG Coop advances GC3’s mission to support the creation of green jobs and resilient communities. After participating in the first Worker Coop Academy, DIG Coop has set out to expand its model with our assistance. We have since revised the coop’s bylaws, advised on its tax status, and completed an employment law audit with the goal of fine-tuning the coop’s business operations and preparing it for growth while maintaining its cooperative principles. In the near future, DIG Coop seeks to hire employees who will have the potential to become members.

Although rainwater catchment and greywater systems cannot solve California’s water crisis alone, DIG Coop’s integrated water solutions provide a more sustainable alternative to the status quo. Fittingly, DIG Coop’s cooperative business model itself embodies a more sustainable alternative to the status quo of undemocratic workplaces. Each of DIG Coop’s members wears the hat of owner and worker. And this increased decision-making power increases the business’ overall commitment to ecological regeneration through water. On both fronts, DIG Coop is taking ownership and creating better systems for both water consumption and the workplace.

Jassmin Antolin Poyaoan is a third year law student at UCLA School of Law. She is spending her final semester of law school as clerk with GC3.

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Cooperative Networks, A Market Advantage


Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures. — The Sixth Cooperative Principle.

Cooperative business support networks are a valuable market advantage, creating resilience in an unstable economic environment.

Inkworks Press — a 40 year old Berkeley printing collective rooted in social activism — experienced the challenges of a shifting economy. Internet-based printing, heightened competition, and a financially struggling nonprofit client base presented major challenges to print shops, including Inkworks, across the country.

But unlike many other print shops that were forced to close their doors over the past decade, Inkworks has positioned itself for a successful and graceful shift into its next chapter.

Inkworks’ advantage over other print shops was its utilization of the sixth cooperative principle: cooperation amongst cooperatives. The Cheeseboard — a well-known and thriving Berkeley coop — purchased the Inworks’ building in 2014. This transaction provided Inkworks with the cash necessary to continue operations, while also providing the Cheeseboard with prime real estate in a hyper-competitive market — a clear win-win for both businesses.

Before the sale, Inkworks was in a bind. They needed to sell their building to provide immediate capital for their business. But they weren’t ready to close shop, abandoning their workers and community without a conscientious plan for moving forward.

Inkworks and the Cheeseboard found a solution. By considering each other’s interests, rather than approaching negotiations as a zero-sum game, the two cooperatives were able to cooperate!

Each member of Inkworks and the Cheeseboard was involved in the sale; all 40 members of the Cheeseboard inspected the Inkworks property before the sale was finalized, and the final decision required a consensus from both organizations. The methodical process of getting each member involved in the sale respected the needs of both organizations and their members. Although this process slowed down the sale, it also provided both sides with the time needed to hash out a deal that would benefit each party.

Inkworks lowered the sale price in exchange for the Cheeseboard agreeing to lease the building back to Inkworks at sub-market rent, giving Inkworks the time it needed to plan next steps. The sale guaranteed Inkworks both the opportunity to fairly compensate its collective workers and a cash flow for the next few years.
Whatever their next move may be, Inkworks is sure of one thing: the next Inkworks incarnation will continue to be based on a commitment to social activism and community. Inkworks’ current members are all contributing to the collective’s future vision. Inkworks has even reached out to its clients, old friends, and local community to provide input on how Inkworks can continue meeting the needs of the activist community.

We look forward to seeing their next move, we’re sure it will be done in the spirit of cooperation!

For more information on Inkworks Press, visit their website at

Amanda Whitney is a second-year law student at UC Davis, School of Law and was a 2014 summer law clerk at GC3.

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From Homes to Gardens: Land Trust Covers New Territory in Oakland

Oakland Community Land Trust, a nonprofit community-based corporation, has been facilitating community economic development in Oakland by providing affordable housing since 2009. The Trust buys and rehabilitates vacant, foreclosed homes and sells them to new homebuyers at a price affordable to low-income families. The Trust leases the land to the new homeowner for a 99-year renewable term through a residential ground lease, and retains ownership of the land under the homes. By retaining land ownership, the trust ensures that the home will remain permanently affordable and cannot be transferred to a for-profit buyer, thus removing it from the speculative market.

The Trust has one vacant lot on a parcel in East Oakland that is not currently suitable for a family. Rather than put the land to residential use, the Trust will convert it into a community garden in collaboration with a local youth urban farm project, Acta Non Verba (ANV). ANV operates an urban farm in Oakland, which provides garden education, a safe space, fresh vegetables and healthy living resources for local youth and the wider community. ANV has discussed using the Trust’s parcel to create a community orchard and demonstration site in the neighborhood. Putting the Trust’s land to this kind of agricultural and educational use would bring the surrounding community together and offer productive and engaging activities, as well as a safe space for parents, children and families to use.

Conveniently, the City of Oakland recently approved changes to the Oakland Planning Code, which will allow limited agricultural use of land without a permit—such as community gardens and urban farms—in residential zones.

Because the Oakland Community Land Trust has thus far focused on affordable housing and residential ground leases, it has requested GC3’s assistance in putting this parcel to non-residential agricultural use. Assisted by pro bono real estate counsel from the law firm Paul Hastings, LLP, GC3 is drafting an agricultural ground lease for the parcel. GC3’s work on this lease could pave the way for the Trust to expand the ambit of its land trust model to include new ways to involve low-income Oakland community members in access to increased community gardening, healthy food, and green space.

Anuthara Hegoda is a second-year law student at Berkeley Law and was a Fall 2014 GC3 law clerk.


A glimpse of the Acta Non Verba Community Garden in East Oakland

A glimpse of the Acta Non Verba Community Garden in East Oakland.

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Shining a Light on Cooperative Ownership Transitions

Worker cooperatives help create resilient, vibrant local economies.  While American corporations relocate their production and “invert” their headquarters overseas in a never-ending quest to maximize shareholder value, cooperatives in the East Bay have been flourishing – creating stable, high paying jobs that serve the interests of the local community.

Supporting worker cooperatives has been a core mission of the GC3 clinic.  At the local level, GC3 has been on the frontline, helping entrepreneurs successfully launch worker cooperatives and assisting in a variety of advisory matters.  Recently, GC3 has entered the area of cooperative ownership transition, which is when a business is sold to the workers and re-organized into a worker cooperative.

Several recent ownership transitions demonstrate the flexibility of this approach as an exit for business owners.  Select Machine, a tool and equipment manufacturer based in Illinois, converted to an employee cooperative in 2005 through several stock redemptions, financed by a combination of cash buyouts, bank loans, and a note from the owners, spanning over the course of several years.  Real Pickles, a local and growing pickle manufacturer that converted in 2014, financed their conversion through a direct public offering, issuing non-voting preferred shares to local investors.  Conversion is a real option for larger businesses as well: more than sixty employees formed a cooperative to buy out three privately owned businesses from their employer in the recent Island Employee Cooperative conversion.

There are many reasons for businesses to transition ownership.  For example, a retiring business owner who has a strong working relationship with and respect for her employees may be interested in selling the business to the employees rather than an outside buyer.  Conversion offers these business owners a pathway to retirement that also protects their employees’ livelihoods.

Most business owners fail to consider conversion as a viable exit strategy.  There are multiple reasons for this, including a lack of understanding of how to successfully convert, few precedents to follow, and few consultants who can assist a business owner through the process.

To encourage more conversions, GC3 has teamed up with local non-profits Sustainable Economies Law Center and Project Equity to publish a how-to guide to inform business owners, employees, and outside consultants about how to sell a business to its employees.

If you are interested in learning more about cooperative conversions, keep an eye out for the guide in the spring of 2015.

Phil Garber is a GC3 law clerk and a second-year law student at Berkeley Law.

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East Bay Community Law Center Statement of Solidarity with #blacklivesmatter Protesters in Berkeley

Statement by the East Bay Community Law Center in Solidarity with the #blacklivesmatter Protests in Berkeley, CA

 December 8, 2014

The staff of the East Bay Community Law Center stand in solidarity with the #blacklivesmatter protests in Berkeley, CA over the killings of Eric Garner, Michael Brown, and the countless other people of color who have died at the hands of the police. We are concerned that the Berkeley police response to demonstrators on the nights of December 6 and 7 far exceeds what is needed and called for. We demand an inquiry into the use of tear gas, rubber bullets, “kettling” and other tactics used by the Berkeley police on demonstrators exercising their fundamental constitutional rights of assembly and speech.

The protests in Berkeley reflect outrage with a criminal justice system in which race, wealth and state power — not truth, accountability and culpability — dictate outcomes. This is what the clients and staff of EBCLC experience daily in courthouses and jails, as well as social services offices, schools and on the streets.  What is new — and gives us hope — is the public outcry. The protests in Berkeley and across the country suggest a critical turning point in the conversation about racialized poverty and the over-policing of communities of color.

Berkeley has a proud history of public protest. It fits that Berkeley be a leading voice in the #blacklivesmatter protests taking place across the nation. Of all police departments, the Berkeley police should be well prepared to respond to protests in careful and measured ways. But a measured response is not what we have seen over the past two days.

Many, particularly in the media, have tried to justify the heightened police response because of a few acts of vandalism and property destruction, which appear to have been carried out by a small group of demonstrators.  EBCLC does not condone property destruction and supports those small businesses impacted. However, there are ways to protect both protesters and businesses without relying on, and sanctioning, police violence. In the days to come, protesters in Berkeley and across the nation who take to the streets to voice their outrage against police violence should have their rights protected — not their bodies endangered by a further escalation of state-sanctioned force.

EBCLC stands in solidarity with the protesters in Berkeley and demands an inquiry into the Berkeley Police Department’s use of force on protesters.

Statement by the East Bay Community Law Center in solidarity with blacklivesmatter


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