Founder Departure

The negative equity account and and negative collective reserve account create a problem when a founding member leaves the cooperative before the negative balance is eliminated. In that case the founding member is over paid for their internal capital account, which due to the bookkeeping has not been reduced in value. The assumption is that the coop will be successful and fully eliminate the negative equity or capitalized loss with future profits, justifying the payout to the previous member.

The transaction where the departing member is paid out is an unjustified transfer of the departing member’s loss to the remaining members of the cooperative. The departing member should be paid the reduced value of their internal capital account, fully adjusted for their share of the loss.

Under these two accounting models the worker cooperative capital structure fails to accurately account for a situation where a cooperative is started, a founding members departs, and then the cooperative fails. In this case the loss falls disproportionately on the remaining members of the cooperative, while the departed member gains an unjustified financial benefit.