Internal Capital Accounts

Year: 
2015
Affiliated Organization: 
ICA Group
Description: 

The ownership structure is the basic building block of any enterprise. It determines what stake each owner has in a company, as well as how authority, responsibilities, risks, and rewards are distributed in a firm. It also determines how an owner enters and leaves the company. In a worker co-op, an individual member’s share of the value of the firm should be tracked using a system of internal capital accounts.

This is quite different than a traditional corporation where the net worth is reflected in the value of stock. As a conventional firm grows and becomes more valuable, the value of each owners stock increases in value as well. By recording the value in a share price, the appreciated value of these stocks might make them too expensive for new members to purchase.  Historically, using capital shares rather than capital accounts, has led successful worker cooperatives to sell off because new workers couldn’t afford to buy into the company.

The internal capital account system addresses this issue by shifting the function of carrying the net worth of the company away from the shares and into the internal capital accounts.  Increases in net worth will increase the balance in members’ accounts, due back to them eventually in cash.  The membership share, however, doesn’t substantively change in value, enabling new members to pay an affordable membership fee when they join.  At any given time, members may have differing claims on the company’s net worth, but they all have the same membership rights and only one membership share each.  This worker cooperative structure is designed to create a business that is multi-generational in nature in order to sustain the democratic corporate structure over time.

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