MA Bill Would Promote Transition to Worker Coops

A new Massachusetts bill, "An Act promoting entrepreneurship through employee ownership," appearing in identical versions in the Massachusetts House and Senate as H. 503 and S. 305, respectively, would encourage small business owners to transition their firms to worker cooperatives. Companies must have at least three employees and meet the definition of a small business under Small Business Administration (SBA) standards. The sale must be to a worker cooperative or to an LLC or partnership that otherwise meets the requirements for worker cooperatives, including equal voting power for all employees who are designated as owners under the company’s bylaws. Profits must be distributed based on “patronage," defined as hours worked for the company.

The bill requires that small business owners offer a 30-day right of first refusal to a “qualified employee group” (QEG) if the owner chooses to sell 51% or more of the company in an equity sale. Employees must be told about employee ownership as an option and how to get information from the Massachusetts Center for Employee Ownership. Employees will have 180 days to make a competing offer if they notify the owner within 30 days of their intent to do so. If the offer is for as much or more than any other bona fide offer during that time, the owner must sell to the employees.

Owners selling to employees will, subject to the democratic governance requirements below, be exempt from capital gains tax on the first $1 million of the sale (if the sale is only partially to employees, this covers only the portion sold to the QEG). The capital gains tax in Massachusetts is currently 5% as of June 2025, with a 4% surtax on gains over $1,083,150 (as of tax year 2025, indexed yearly for inflation). However, if the QEG does not purchase 100% of the business, the bill's provisions apply only if the QEG holds the sole voting rights and decision-making power. Sales that include agreements infringing on these requirements for democratic governance will nullify the owner's tax exemption. Any union or collective bargaining agreements existing before the sale must continue under the new ownership structure, and the post-sale business cannot be subject to external influence from non-worker or non-member parties.

The bills currently have only Democratic sponsors: Christopher J. Worrell and Sean Garballey in the House and Paul W. Mark and Julian Cyr in the Senate. Massachusetts has demonstrated a strong commitment to promoting employee ownership, as in its 2022 establishment of the Massachusetts Center for Employee Ownership referenced above.