Here Are 3 Business Structures to Look Into Before You Open Your Raw Vegan Restaurant

​​Thinking of opening a raw vegan restaurant? Here are some business structures to consider as you are doing your business planning: 

1. Perpetual Purpose Trust
2. Worker Owned Cooperative
3. ESOP

Perpetual Purpose Trusts (PPTs)

Perpetual Purpose Trusts (PPTs) are non-charitable trusts that is founded for the benefit of a purpose rather than a person and is administered by a Trust Agreement that specifies the purpose. PPTs, unlike most trusts, can operate indefinitely.

PPTs have become a popular tool in the United States for creating purpose-driven corporations with shared ownership. These trusts are used in communities to prevent relocation and maintain value. Non-profit leaders seek PPTs as a flexible alternative to traditional charitable options, while retiring founders use them to establish intergenerational succession plans that preserve the company’s independence and mission while involving employees. Many entrepreneurs also utilize PPTs to attract aligned growth capital and build businesses with a long-term focus.

PPTs have numerous advantages, including protection against future asset sales, long-term affordability for everyone, reinvestment mandates, access to resources/economic value generated by assets, and the definition and protection of governance structure for stakeholder/peer governance.

Designing and incorporating PPTs is quite simple. After you’ve completed the governing documents and assigned trust duties, you’ll need to file the trust paperwork with the proper state officials. While there are no constraints on the kind of shares or assets the trust can own, the ultimate goal for mission preservation should be for the trust to buy and hold 51 percent or more of the company’s voting shares.

A prime example of a PPT is Firebrand Artisan Breads. Founded by Matt Kreutz, in 2008, they started operations by baking bread and pastries in a wood-fired brick oven. Food and beverage companies like this one, with such a strong growth trajectory, would ordinarily be a good fit for a venture capital firm. Instead, Firebrand worked with outside consultants and attorneys to form a perpetual purpose trust to serve as a new parent company, and Kreutz gave the trust 51 percent of his voting shares to hold in perpetuity. Firebrand’s perpetual purpose trust charter contains 11 “purposes” that cover everything from maintaining a profit-sharing program for employees to involving employees in management and governance to prioritizing the hiring of people who have been formerly incarcerated, homeless, or face other significant barriers to employment. It even mandates that the supply chain of the underlying company be leveraged to promote equitable business practices.

The Purpose Foundation, or Purpose Economy, was established in Germany back in 2015. It is an international network of organizations that aims to change capitalism’s focus from profit maximization to achieving social causes through PPTs. In 2017, two Americans set up a branch of the Purpose Foundation in Berkeley, California. Organically Grown Company (OGC), the second-largest distributor of organic fruits and vegetables in the US, was among Purpose Foundation’s early successes. 

In 1978, a collective of small-scale farmers, gardeners, environmental activists, and hippies came together to establish the Organically Grown Company. Their shared vision was to make organic produce more readily available and in demand. Originally founded as a non-profit, the company soon evolved into a community-led cooperative with a mission to establish a fair and ethical marketplace. 

OGC was established with an Employee Stock Ownership Plan (ESOP), in which employees own a portion of the company’s stock. Each ESOP is overseen by a trustee who is responsible for maximizing the value of its shares. We will talk more on this business structure below, but this approach may attract wealthy investors who could potentially acquire the business. To prevent a larger company from taking over, the retiring founders of OGC sold their shares to a PPT. This strategy ensures that those who are genuinely interested in the company’s mission manage it, and profits are reinvested into promoting sustainable food systems.

Worker Cooperative

Another business structure to explore is the Worker Cooperative, which is owned and governed by the people who work there, and who have an equal say in what the company accomplishes as well as a fair part of the wealth earned from the products and services they provide. Workers own the firm and share in its financial success based on their labor, and commitment to the cooperative. Workers also have representation on the board of directors.

Worker-owners frequently oversee day-to-day operations through various management structures, in addition to their economic and governance engagement. Worker cooperatives are a concrete example of leveraging business as a force for social good, with their emphasis on people before profit, community building, equitable compensation, and involvement. Profits from a worker cooperative go directly to the workers, as a result, the money stays in the local economy, generating prosperity for the community. These businesses stay connected and accountable to their communities by putting ownership in the hands of workers who live and spend locally.

Businesses transition to worker ownership for various reasons:

1. Exit strategy: Sometimes, the owner wants to retire or leave the business for other reasons. Transitioning to worker ownership can be a way for them to pass on the business to the employees.
2. Mission and stakeholders: Businesses may choose worker ownership because they value their employees as important stakeholders and want to include them in decision-making processes.
3. Wealth-building opportunities: Worker ownership can provide employees, especially those in low-wage sectors, with a chance to build wealth by sharing in the company’s success.
4. Good for business: Studies have shown that employee-owned businesses tend to be more financially successful and better able to withstand economic downturns compared to other businesses.

To support businesses in becoming worker-owned, various organizations offer assistance. These organizations, including small business services, nonprofits, law firms, and cooperative finance institutions, help analyze the feasibility of a business taking on the necessary debt to become worker-owned. Lenders can work with these organizations to access a market of businesses that have been vetted and have a range of values, from under $300,000 to over $10 million. These organizations are invested in the success of these businesses and aim to prevent closures and create good job opportunities.

For lenders specifically interested in financing worker cooperatives, converting existing businesses offers the best opportunities in terms of loan size and risk profile. While there are few mid-sized worker cooperatives with more than 20 members, most financing opportunities in the worker cooperative sector involve small or start-up ventures. Converting successful companies into worker cooperatives is often considered a lower-risk financing opportunity because these companies already have established markets, a positive financial history, experienced management teams, and a demonstrated ability to borrow.

Starting a worker cooperative can be a powerful way to bring positive change to under-invested communities, providing better wages and pumping up economic activity in historically underinvested areas. When creating a co-op, the first step is to call on each member’s talents and motivation to create goals and understand how decisions will be made — by agreement or vote. Then draft a business plan, pick a legal structure and name the project, and register it with the state. 

Employee Stock Ownership Plan (ESOP)

Lastly, an Employee Stock Ownership Plan (ESOP) is another business structure to consider. ESOPs enable employees to own part or all of the company they work for. They’re most typically utilized to help with succession planning, allowing a business owner to sell his or her shares and exit the company in a flexible manner.

An ESOP trust is established by the company. The corporation can either contribute funds to the trust to buy shares of stock from existing owners at no more than fair market value, or it can issue new shares if the owner does not wish to sell.  If the company lacks the funds to do so right away, the ESOP can take out a loan to purchase new or existing shares while the firm provides funds to help the trust repay its loan. Employees are given shares in the trust, which are often distributed based on relative compensation. As they work longer for the company, their right to the shares increases, a process known as vesting. All full-time employees above the age of 21 must, in general, must be able to participate in the plan. Employees eventually become owners of the company and have some power and voting rights. When an employee leaves the company, they are given their stock, which the corporation is required to buy back at fair market value. As a result, the employee receives from the trust the value of his or her shares, usually in the form of cash.

Differences between ESOPs and worker cooperatives

 There are two main differences between ESOPs and worker cooperatives:

1. Worker cooperatives are controlled by workers and they make decisions together, while ESOPs have fewer requirements for worker involvement (though they can still be worker-controlled).
2. Worker cooperatives have fewer regulations, while ESOPs are governed by federal laws that cover how they are managed, including things like how ownership is allocated, how long employees need to work to earn ownership, how the company’s value is determined, and how profits are distributed.

ESOPs can be costly to set up and maintain, so experts usually suggest that companies with fewer than 50 employees may find them too expensive. However, there can be exceptions. On the other hand, worker cooperatives generally have lower costs for transactions and ongoing management, and they can be a good fit for companies of any size.

The advantages of establishing an ESOP are numerous, and they benefit both owners and employees. Here are five positives to think about:

1. Increased Productivity
2. Alternate Exit Strategy for Aging Owners
3. Tax Advantages
4. Attracting Top Talent and Employee Retention
5. No Change in Governance

How can you set up an ESOP?

Once the owners of a company are willing to either sell or dilute their shares, then the next step is to perform a feasibility study. The feasibility study should assess whether the company has enough payroll for participants to be able to deduct their contributions. Finally, the research should calculate the company’s repurchase commitment (paying out the value of shares to retiring employees) and how it will be handled.

The following stage is to do a business valuation after which you should hire an attorney to assist in drafting and submitting your plan to the IRS. You will receive your letter of determination in a few months, but you can begin making contributions before then.

The next step is to obtain funding for your employee stock ownership plan (ESOP). This can come from a variety of places. For instance, the ESOP can take out a loan from a bank, a vendor, or another third party. The company also has the ability to contribute on a regular basis, and employees can pay to the plan in a variety of ways, the most frequent of which are wage or benefit reductions.

The final step is to create a procedure for carrying out your strategy. This can be done by choosing a trustee to oversee the plan and be directed by an ESOP committee made up of managerial and non-managerial representatives, either in-house or externally. It is important to inform employees about the plan so that they see the value and may participate.

Deciding between a perpetual purpose trust, a worker-owned cooperative, or an ESOP

Deciding between a perpetual purpose trust, a worker-owned cooperative, or an ESOP for a juice bar or any healthy food establishment requires careful consideration of the business’s goals, values, and long-term vision. Here are some factors to consider:

1. Purpose and values: Determine the primary purpose and values of the business. If there is a strong desire to create a lasting charitable impact, a perpetual purpose trust may be appropriate. If promoting employee ownership and democratic decision-making align with the core values, a worker-owned cooperative or an ESOP could be suitable.
2. Ownership succession: Consider the long-term ownership succession plan. If the owner wants to gradually transition ownership to the employees, an ESOP or a worker-owned cooperative would be worth exploring. If the owner prefers to retain ownership but ensure the business’s long-term purpose, a perpetual purpose trust might be a better fit.
3. Employee engagement and motivation: Assess the potential impact on employee engagement and motivation. If the goal is to empower and motivate employees by giving them a stake in the business, a worker-owned cooperative or an ESOP can provide that sense of ownership and financial benefit.
4. Legal and financial considerations: Consult professionals familiar with these structures to understand the legal and financial implications. They can help assess the feasibility, costs, and potential tax advantages or drawbacks associated with each option.
5. Community impact: Consider the potential community impact of each structure. A perpetual purpose trust can position the business as a socially responsible one, while a worker-owned cooperative can contribute to local economic development and job creation.

Ultimately, you should carefully evaluate these factors and consider the unique circumstances and goals of the business. Engaging with experts and seeking professional advice can provide valuable insights and help make an informed decision.