Sociedades Laborales: Worker-Owned Companies in Spain – Case

Studies
By Armandina Vogel

TABLE OF CONTENTS

2. ​History ​
3. ​Current Situation ​
4. ​Historical Development ​
5. ​Survival Prospects ​
6. ​Legal Framework ​
7. ​Tax Incentives ​
8. ​Government Aids and Subsidies ​
9. ​The Capitalization of Unemployment Benefits ​
10. ​Organizations representing Sociedades
Laborales ​
11. ​Conclusions ​
12. ​CASE STUDY: IZAR CUTTING TOOLS
S.A.L. ​
​Corporate Governance ​
​The Advantage of being Worker-Owned ​
​Company Structure ​
13. ​CASE STUDY: KOMUNIKAZIO BIZIAGOA
S.A.L. ​
​The Advantage of being Worker-Owned ​
​Company Structure ​
BIBLIOGRAPHY ​

1. Introduction

Employee financial participation (EFP) in Spain largely

takes place in the form of cooperatives and sociedades
laborales (worker-owned companies); however, the European
Union does not regulate worker-owned companies
specifically. Spain has regulated these companies for more
than two decades. This paper will show how worker-owned
companies have proven to be a successful business model
both for society and the economy. Thereafter, two cases of
successful worker-owned companies will be presented.
A sociedad laboral is a specific form of corporation in
Spain – with no exact parallel in other developed countries. It
is an inexpensive form of incorporation, majority-owned by
its permanent employees; but unlike cooperatives, it is based
on stock ownership and is able to contain non-employee
capital. The terms worker-owned company and sociedad
laboral (SL) will be used interchangeably in this paper.
Sociedades Laborales promote stable employment for their
worker-owners, who control the company’s directive bodies
(Morales, Martín, & Lejarriaga, 2008). They are distinguished
by their democratic decision-making processes and equitable
distribution of profits. Companies may be founded as SLs or
convert from conventional companies to SLs.
Spain categorizes worker-owned companies as part of their
"Social Economy" because they share the following common
principles: predominance of human over economic interests,
solidarity within the organization as well as with society,
sharing of profits, and democratic organization. Nevertheless,
classifying SLs next to Associations for the Handicapped has
positioned them in the context of subsidized assistance
organizations. Nothing could be farther from the truth; SLs
are productive economic companies. Notably, despite their
more equitable distribution of wealth, they receive the same
treatment accorded conventional corporations (where profits
are mainly reaped only by a few). SLs are based on such
concepts as flexibility, worker motivation, continued learning,
information transparency, and great communication.

2. History

The Spanish Constitution, in article 129.2, not only makes

the State responsible for creating employment; it also requires
that the State promote EFP in its different forms. Furthermore,
the State is to provide the means to facilitate workers' access
to ownership of productive property.
Sociedades Laborales were created to meet the needs of the
times. In 1973, the Oil Crisis forced workers in Spain to take
over the companies where they worked – securing their jobs
and the means of production. Thereafter, Law 15/1986 was
passed to create Sociedades Anónimas Laborales or SALs
(Public Worker-Owned Companies). Following economic
turmoil, worker-owned companies went on to become a form
of organization equivalent to conventional corporations.
 The real breakthrough came a decade later when the current
legislation (Law 4/1997, dated 24th March) was passed. It
created the Sociedad Limitada Laboral or SLL (Limited
Liability Worker-Owned Company), which required
considerably less starting capital (3,005.60 € instead of
60,101.21 €). Furthermore, its low incorporation costs
provided the flexibility needed for small and medium-sized
enterprises (SMEs). SLLs have since become the most
prominent form of worker-owned company.

3. Current Situation

The data used in this paper comes from MEYSS

“Ministerio de Empleo y Seguridad Social” (Ministry for
Employment and Social Security), who sourced them from the
Social Security Administration; additional data was obtained
from INE “Instituto Nacional de Estadística” (National
Statistics Institute). By the end of 2011, there were 13,465
worker-owned companies providing 74,438 jobs–representing
3.8% of Spain’s private sector companies with more than two
workers. Clearly, the preferred legal form is the SLL – with
SALs encompassing a mere 12% of the total of sociedades
laborales. Nonetheless, SALs create more employment due to
their larger size; they employ an average of 12.2 workers
while SLLs employ an average of 4.6 workers. As a result,
SALs employ 27% of workers in sociedades laborales.
Figure 1 Figure 2

The number of workers in sociedades laborales reflects

only workers registered with the Social Security
Administration under the General Regime. Statistics are not
kept on SL workers registered under the Special Regime for
Self-Employed Workers. Thus, according to a poll conducted
by CIRIEC (Monzón et al., 2010), real employment levels are
around 32.09% higher than the ones presented by MEYSS.

Figure 3
Sociedades Laborales are basically SMEs (99.9% of SLs
have 250 or less employees). Most of them (75%) are micro-
entities with less than 5 workers; followed by micro-entities
with 6 to 10 workers (15%). They were initially large
industrial companies, but today most of them (59%) are small
service firms; 25% come from the industrial sector, followed
by 14% from the construction sector, and 2% from the
agricultural sector.
Figure 4

4. Historical Development

The development of SALs and SLLs during the past 12

years (1999-2011) has clearly diverged: the number of
workers in SALs decreased by 63% during this period, while
the number of workers in SLLs increased by 161%. It must be
noted that the incredible growth shown by SLLs was not
exhibited by their capitalist counterparts (LLCs). The number
of workers in LLCs grew by only 52% (compared to 161% in
SLLs) during the same period. In contrast, the number of
workers in conventional public limited companies or PLCs
decreased by a modest 6%, compared to the 63% decrease
seen in SALs, their worker-owned equivalent.
The general trend followed by SLs mimics that of
mercantile companies since they are basically economic
equals. They face the same problems as other SMEs, mainly
to become sufficiently competitive. Compared to conventional
companies, SLs have grown in larger numbers – yet the net
increase in number is negative. Unlike cooperatives,
dissolving a SL is a mere administrative act. As a result of this
model's volatility, companies easily switch from being SLs to
conventional companies. The alarming decrease in number
of SLs does not mean these companies have ceased
existing. In most cases, they have converted to
conventional companies (either by choice or by
disqualification). Furthermore, the financial crisis has
played a large role in their decline (in a similar pattern as
that of conventional companies).

Figure 5
Figure 6

When discussing employee ownership, it is the dearth of

employee-owned start-ups that stands out. Employee Stock
Ownership Plans (ESOPs) are too expensive for new
businesses, especially SMEs. SLs are a great tool for creating
new employee-owned enterprises or for buying troubled
companies; they are simple, flexible and economical.
The decreasing number of worker-owned company start-
ups can be explained by a change in policy regarding the
capitalization of unemployment benefits (see p.15). When this
aid was offered exclusively to SLs and cooperatives, worker-
owned companies grew at steady rate (see Figure 7). In 2002,
when policy changed and capitalization became possible for
self-employed workers, the attractiveness of incorporating as
a SL declined. The annual variation in the Registry of
Sociedades Laborales has been negative almost every year
since 2002, hitting an all-time high of -48% in 2009 (due to
the financial crisis). Evidently, judging by the steep descent in
the number of SLs registered during the past nine years, this
measure was detrimental to worker-owned companies

Figure 7
 The future of SLs shows a clear preference for the SLL as
the incorporation form of choice; with 98.7% of worker-
owned companies registered in 2010 adopting this form. The
companies’ size is also significantly smaller: 1,252 SLs were
registered with 4,590 partners, out of which only 3,382 were
working partners. This means the average size of new SLs is
only 2.7 workers. By law, the minimum amount of working
partners is two, but no partner may own more than 33% of the
company. Therefore, many companies are founded by two
workers who recruit a third investing partner.
The main characteristics of these entrepreneurs are:
• They plan their investment strategies on a long-term
basis.
• They tend to prefer long-term growth than the
distribution of dividends or profits.

Table

Sociedades
Laborales
Registered
1999 - 2011
Avg. No.
Working Investing
Year Total New SLs Total Partners % Investors Working
Partners Partners
Partners
1991 586 5,132 4,473 659 13% 7.63
1992 820 5,772 4,928 844 15% 6.01
1993 1,077 7,493 6,336 1,157 15% 5.88
1994 1,318 8,439 6,805 1,634 19% 5.16
1995 888 5,939 4,930 1,009 17% 5.55
1996 706 4,260 3,422 838 20% 4.85
1997 1,315 6,071 4,779 1,292 21% 3.63
1998 3,979 15,313 11,307 4,006 26% 2.84
1999 4,522 16,589 11,814 4,775 29% 2.61
2000 4,851 17,405 12,306 5,099 29% 2.54
2001 5,454 19,387 13,654 5,733 30% 2.50
2002 6,013 21,209 14,983 6,226 29% 2.49
2003 5,353 19,088 13,770 5,318 28% 2.57
2004 4,249 15,558 11,281 4,277 27% 2.65
2005 3,466 12,491 8,982 3,509 28% 2.59
2006 2,526 8,967 6,488 2,479 28% 2.57
2007 2,341 8,290 5,987 2,303 28% 2.56
2008 1,514 5,655 4,164 1,491 26% 2.75
2009 1,225 4,793 3,526 1,267 26% 2.88
2010 1,252 4,590 3,382 1,208 26% 2.70
2011 1,145 4,336 3,293 1,043 24% 2.88
Source: Own elaboration with data obtained from MEYSS

5. ​ Survival Prospects

Worker-owned companies have a mission that sets them

apart from other mercantile companies; their main function is
to create stable employment for their worker-owners. This
peculiarity creates a stronger bond between the worker and
the company, which translates into increased productivity. For
this reason, SLs have demonstrated their ability to generate
stable employment and endure over time. The survival rates of
SLLs mirror those of conventional companies – 49% of SLLs
compared to 49% of conventional companies survive the first
five years; however, SALs outperform conventional
companies with a survival rate of 55%.

Table

Survival Rates of Sociedades Laborales according to Age

1 2 3 4 5 6 7 8 9 10
SAL 89.74 78.27 71.24 62.61 54.72 48.78 42.84 41.33 37.95 33.51
SLL 88.17 76.01 64.22 55.38 48.51 42.37 37.57 34.30 31.24 28.45
Source: Own elaboration with data obtained from MEYSS

The higher survival rates of worker-owned companies

can be explained by the difference in their main purpose,
since their main goal is to secure stable, high-quality jobs
(unlike conventional companies, they do not pursue
financial gain as an end in itself) (Millana, 2002).
Organizations such as ASLE and CONFESAL (see p. 17)
have also played a key role in the support and promotion
of worker-owned companies in Spain.
Despite their small size, with an average of 12 workers,
three out of four SALs in the Basque Country made a profit in
2011. Since 2007, employment in SALs in the Basque Region
has decreased by 20%, while in Spain as a whole it has
decreased by an astounding 40%. The superior performance
of worker-owned companies compared to conventional
companies is due to the flexibility provided by employee
participation (García-Gutiérrez & Lejarriaga, 2009).
Flexibility in this context, means companies are able to adapt
to adverse economic conditions. Workers are highly
motivated and willing to sacrifice (in the form of pay-cuts and
overtime) in order to keep their company in business.
 6. Legal Framework

Worker-owned companies are subject to a two-fold

legislation; their own individual regulation and conventional
legislation in any matter not regulated in its 1997 Law of
Sociedades Laborales.
The essence of Sociedades Laborales is the following:
• Permanent workers must own more than 50% of
company shares.
• No single owner may own more than one-third (33%) of
the company's stock (except for public organizations,
which may own up to 49%).
• Non-owners may not work more than 25% of the hours
worked by worker-owners in companies with fewer than
25 employee shareholders.
• Non-owners may not work more than 15% of the hours
worked by worker-owners in companies with more than
25 employee shareholders.
• There is an order of preference in the acquisition of
shares; they do not trade in open markets.
• Employees exiting the company are required to offer
their shares for sale. Should no one exercise his or her
purchase rights, the former worker shall become a
general shareholder.
• Two types of shares exist: worker shares (acciones de
clase laboral) and general shares (acciones de clase
general). Worker shares are reserved for permanent
employee and they always have voting rights (unlike
PLCs, who may issue shares without voting rights).
• Companies must set up a Special Reserve Fund in which
to allocate 10% of their yearly net profits.
• If tax benefits are being applied for, companies must
allocate 25% of their yearly net profits to the Special
Reserve Fund.
The order of preference in the acquisition of shares means
certain groups are allowed to buy shares before others. The
order is the following:
1. Permanent workers who are not already owners
2. Existing worker-owners
3. Temporary workers and existing shareholders outside the
company
 4. The company itself
5. Third parties
Each group is given a time frame to act upon their preferred
rights, therefore it might take up to six months before third
parties are allowed to purchase shares. The reason behind
these preferred purchase rights is to maintain broad employee-
ownership. This policy, however, has its drawbacks; the time
slots allotted each group to buy shares delay the transfer of
ownership to a point that may even make the sale pointless
(Lejarriaga, 2004).
The law of 1997 has greatly stimulated employment growth
by accelerating the creation of sociedades laborales; still, it
was passed fifteen years ago and needs to be reformed in
order to adjust to today’s legal and economic environment
(Valiñani, 2008). To illustrate the pitfalls of this regulation,
SLs that do not continue to meet the above conditions loose
their legal status as worker-owned companies. Nonetheless,
they may continue their operations as conventional public or
limited companies. This legal gap, which unnecessarily
disqualifies SLs, has been detrimental to countless worker-
owned companies. In most cases, companies went under the
51% threshold required to be qualified as a SL (because of
retiring partners; or new workers who either chose not to
become partners, or haven’t yet made the transition to
owners), yet these companies still maintained widespread
worker-ownership. Furthermore, this regulation has skewed
the statistics available on sociedades laborales – it is hard to
grasp the full economic reality of SLs when innumerable
companies are being disqualified so easily.

Since 2008, a proposal for law reform has been in

discussion; its main objectives are the following:
• To make sociedades laborales a more desirable legal
form for entrepreneurs.
• To take labour market policy, which has proven to be
successful for self-employed workers, and adapt it to
enhance the attractiveness of worker-owned companies
(as a possible incorporation form).
• To consolidate SLs as a valid company form in times of
recession as well as of economic growth.

To achieve these goals, the reform proposal plans to:

• Establish effective mechanisms that ease permanent
workers’ access to ownership.
• Encourage interest in increasing and maintaining the
number of worker-owners, by using objective incentives
 instead of ineffective restrictions on the number of non-
owner workers allowed.
• Create fiscal incentives that stimulate the re-investment
of profits and a higher degree of social commitment.

Examples of the measures proposed are:

• Tax allowance for unemployment benefits when they are
being capitalized to join or create cooperatives or
worker-owned companies.
• The compensation of employees in the form of stock-
options or shares of the company will also be exempted
from income taxes (shares must be kept for a minimum
of five years.
• Tax deduction for investment in capital increase.
• Creation of a company savings account to ease workers’
access to ownership which allows a tax deduction of up
to 12,000 € per year.
• An income tax of 20% for sociedades laborales who
destine a minimum of 25% of the Special Reserve Fund
to ease workers’ access to ownership (e.g. by the
establishment of a share acquisition plan).

It is clear that the Law of Sociedades Laborales needs to be

reformed in order to reactivate their growth and prevent their
conversion into conventional companies (Martín, 2010).

7. Tax Incentives

Sociedades laborales receive the following tax benefits:

• First, they are exempted from paying incorporation
taxes, which also applies to conventional companies
converting to SLs.
• Second, they are refunded 99% of transfer taxes when
the property being acquired belonged to the company
where most of the partners in the SL worked.
• Third, they are refunded 99% of loan notary fees when
the loan in question is being invested in fixed assets
(necessary for their normal operations).
• Fourth, they are allowed free amortization for their first
five years of existence.
Worker-Owned companies fulfil social and economic goals
that should justify a more benevolent tax treatment (Alguacil,
2010). First, they create and maintain high-quality jobs;
second, they promote EFP. Their small size, as well as the
handicaps arising from their special structure and
organization, should be taken into account. The current tax
treatment doesn’t seem adequate considering these criteria.

8. Government Aids and Subsidies

Policy makers in Spain have taken measures to encourage

the growth of cooperatives and sociedades laborales since the
1980s. They called this set of measures the “Program for the
Development of the Social Economy”. It constitutes one of
the active labour market policies, encompassing only 5% of

total labour market policy spending. It has never really been a

priority in comparison to other employment goals – such as
self-employed workers or handicapped persons (Chaves,
2007). The program follows two main lines:

1. Aids and subsidies that encourage employment in

cooperatives and sociedades laborales.

The following measures are eligible for subsidies:

• Incorporation of unemployed persons as worker-
owners
• Technical assistance (mainly for feasibility studies,
auditing, and consulting services)
• Training, promotion, and communication of the
Social Economy to stimulate employment

2. Investment aids for cooperatives and worker-owned

companies.

The following measures are eligible for subsidies:

• Investment in fixed assets (necessary for normal
operations)
• Reimbursement of loan interests.

Subsidies along line no. 1 include grants from the European

Social Fund (ESF), while subsidies along line no. 2 receive
support from the European Regional Development Fund
(ERDF). The amount spent on these measures is not very
significant, amounting to € 12.6 million in 2010.

Table
 Subsidies for Cooperatives and Worker-Owned Companies
(Quantities in
2001 2002 2003 2004 2005 2006 2007 2008
Euros)
Total Subsidies
16,584,937 18,168,531 18,117,457 19,401,225 21,508,131 20,310,003 19,456,671 18,317,341
Paid
Loan interests
paid-back to 2,185,756 1,427,555 904,063 346,044 103,983 69,810 232,770 264,546
companies
Technical
Assistance 163,739 120,591 141,398 198,300 165,668 3,248,714 418,951 922,530
Subsidies

Direct Subsidies
for Investment in 2,776,509 2,995,860 5,571,632 3,066,259 6,015,671 3,987,804 3,665,053 4,162,405
Fixed Assets
Subsidies for
Incorporating
Unemployed 8,405,867 10,518,986 7,730,365 12,081,125 8,491,172 7,779,142 10,540,611 7,702,433
Persons as
Partners
Communication,
Promotion, and
3,053,065 3,105,538 3,769,999 3,709,496 6,731,637 5,224,532 4,599,286 5,265,427
Training
Subsidies

Source: Own elaboration with data obtained from MEYSS

9. The Capitalization of Unemployment Benefits

Despite the lack of sound fiscal incentives for worker-

owned companies, these companies have flourished over the
past 15 years. Their reason for their success is that since 1985,
unemployed persons wanting to join a cooperative or worker-
owned company may receive their unemployment benefits as
a lump sum instead of monthly payments in order to buy into
the company (Barrachina, 2004). This capitalization of
unemployment benefits can also be done to start a new
cooperative or worker-owned company, and to recapitalize an
existing one. In addition, the funds can be used to pay for
employees’ social security contributions. If one decides to
create a new cooperative or worker-owned company by
capitalizing unemployment compensation, a viable business
plan must be presented. The plan is then screened by a SL
development program and scrutinized by the unemployment
compensation system. The new business continues to be
monitored for three years after been founded.
The capitalization of unemployment benefits is regulated
by Law 45/2002, dated 12th December. So far, this has been a
very successful measure (Mercader & Diaz, 2010) – almost
solely responsible for the 134% increase in the number of
limited liability SLs (SLLs) between 1999 and 2011. In
comparison, conventional limited liability companies (LLCs)
increased by 35% during the same period. For all its success,
the government funds spent on the capitalization of
unemployment benefits are negligible compared to the
employment and economic activity generated (Millana, 2003).
Since 2002, self-employed workers are also allowed to
capitalize their unemployment compensation. The average
sum capitalized (see Table 2) was calculated using the total
amount of beneficiaries (including self-employed workers as
well as cooperative and SL workers). Self-employed workers
generally capitalize a much smaller amount than workers in
SLs; therefore, as the number of self-employed workers
making use of this option grew, the average sum capitalized
decreased (from 9,859 € in 2002 to 4,624 € in 2011) (Martín
et al., 2005). Disaggregated data on the amounts capitalized
by each group were not available. Nevertheless, most people
founding SLs or joining existing ones capitalize between 1
and 2 years of unemployment compensation (12,000 € to
30,000 €).
To better comprehend the impact of this policy on the
creation of worker-owned companies, the number of SLs
potentially created due to this incentive was estimated (see
Table 2). While in 2002 51% of companies were established
using this financial resource; by 2006, 100% of SLs were
being created because of it. Finally, the amount of workers
who capitalized their unemployment benefits to join an
existing worker-owned company was estimated. On account
of their positive growth in employment, SLs have become a
real mechanism in labour market policy (Melgarejo et al.,
2007).

Table
 Capitalization of Unemployment Benefits
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
New SLs 6,013 5,353 4,249 3,466 2,526 2,341 1,514 1,225 1,252 1,145
Working
Partners in New 14,983 13,770 11,281 8,982 6,488 5,987 4,164 3,526 3,382 3,293
SLs
Avg. No.
Working 2.49 2.57 2.65 2.59 2.57 2.56 2.75 2.88 2.70 2.88
Partners per SL
Working
Partners who
capitalized 7,688 7,423 8,134 8,339 7,788 7,302 6,426 5,335 4,940 4,422
unemployment
benefits
Potential SLs
created from
capitalizing 3,085 2,886 3,064 3,218 2,526 2,341 1,514 1,225 1,252 1,145
unemployment
benefits
Estimated
Percentage of
SLs created
from 51% 54% 72% 93% 100% 100% 100% 100% 100% 100%
capitalizing
unemployment
benefits
Estimated
number of
partners who
capitalize
unemployment 1,300 1,315 2,262 1,809 1,558 1,129
benefits and
become
partners in an
existing SL
Average
number of days 413 184 146 127 140 136 130 150 156 156
capitalized
Average sum
9,859 € 4,544 € 3,482 € 3,075 € 4,166 € 3,888 € 3,693 € 4,201 € 4,510 € 4,624 €
capitalized
Source: Own elaboration with data obtained from MEYSS

10.Organizations representing Sociedades Laborales

CONFESAL “Confederación Empresarial de Sociedades

Laborales de España” (Spanish Business Confederation of
Worker-Owned Companies) is a non-profit organization that
represents worker-owned companies in Spain. It is composed
of 17 members, one for each autonomous region. It promotes
the creation of new SLs and acts as liaison between
government, social economic agents, and public and private
entities. CONFESAL is a founding member of CEPES
“Confederación Empresarial Española de la Economía Social”
(Spanish Enterprise Confederation of the Social Economy).
CEPES represents the interests of organizations within the
social economy.
In addition to the national associations, the regional system
of worker-owned start-ups is truly remarkable. There are a
series of organizations that provide high-level services,
particularly in business development centres. ASLE,
CONFESAL’s partner in the Basque Country, helps create
around 20 new sociedades laborales every year. ASLE’s fee-
services include accounting, human resources management,
legal services, marketing, IT consulting, quality assurance,
training services, assistance with government programs, and
occupational health and safety. For new companies, they
assist in the preparation of feasibility studies and assure
eligibility for the lump-sum distribution from the
unemployment compensation program (in order to capitalize
the new company). They even do the legal work required to
incorporate and set up the business.
The result of these measures has been the establishment of
a growing sector of employee-owned businesses. Most
importantly, this system enables employees who have worked
together but lost their jobs to form new companies that
preserve the social capital created over years (Logue, 2008).

11.Conclusions

• Worker-owned companies have established themselves

as an effective mechanism for job creation and social
cohesion; providing high-quality, stable employment for
their workers.
• Modern sociedades laborales are SMEs, mostly based in
the service sector, with an average of 4.6 workers in
limited worker-owned companies and 12.2 in public
worker-owned companies. Most workers in SLs come
from unemployment.
• The success of Sociedades Laborales is evident by the
number of companies created and their survival rates,
which are up to 6% higher than those of conventional
companies. This is mainly due to the long-term thinking
of workers, who forego immediate financial gain in order
to secure their work. Furthermore, worker motivation in
SLs is very high, making companies more flexible and
able to adapt to adverse economic conditions.
• SLs owe their success to a series of factors: the
capitalization of unemployment benefits; support, via
subsidies, for the incorporation of new partners; adequate
legal regulation (which should nonetheless be improved);
and smaller tax burden (whose significance is still
limited). In addition, the organizations dedicated to
assisting SLs in their start-up phase and during their
development, have played a key role in their growth and
survival.
 • The capitalization of unemployment benefits has been a
very successful measure, almost solely responsible for
the 134% increase in the number of worker-owned
limited liability companies between 1999 and 2011. In
comparison, conventional limited liability companies
increased by 35% during the same period. For all its
success, the government funds spent on the capitalization
of unemployment benefits are negligible compared to the
employment and economic activity generated.
• The largest increase in worker-owned company start-ups
occurred when the capitalization of unemployment
benefits was allowed for persons wanting to create or
join a sociedad laboral. The number of start-ups
subsequently declined when this measure was extended
to include self-employed workers.
• It is necessary to reform the Law of Sociedades
Laborales in order to reactivate their growth and prevent
their conversion into other legal forms. Most
importantly, worker-owned companies need significant
fiscal incentives, as well as mechanisms for the
acquisition of shares by company workers.
• Sociedades Laborales face the same problems as other
SME; they mainly strive to become sufficiently
competitive.

12.CASE STUDY: IZAR CUTTING TOOLS S.A.L.

The story of Izar Cutting Tools spans more than 100 years,
having been founded in Zumarraga in the beginning of the 20 th

century as “Muelles y Aceros Eguzkia” (Docks and Steels

Eguzkia). It was a pioneer firm in the rise of the metallurgic
industry in the Basque Country, originally producing steel
crossbows for carriages. In 1927, Francisco Belausteguigoitia
bought the company, which he then went on to head for the
next 50 years. He reinvented the firm under the name of Izar
(“Star” in Basque language), producing innovative steel
cutting tools throughout the next decades during which time it
became a market leader. The quality of its products allowed
its 1,100 workers to carry on despite the crisis of the 1970s. In
1988, an indifferent buyer took over the company and let it
crumble over the next two years. Out of despair, the workers
took over the company and began their odyssey as owners.
In October 1993, a bankrupt Izar Tool Machines was
converted into a SAL in order to access the financial
incentives that would enable it to consolidate operations. It
became Izarbarri S.A.L., reducing its workforce from 317 to
178 employees, and considerably increasing its sales. This
was financed from a variety of sources. First, by capitalizing
the employees’ unemployment benefits. Even though this
presented a high risk for the workers, it was the only option
they had to preserve their jobs. Second, a 20% pay cut and
increase in working hours. Third, the advance instalment
received from the National Severance Fund (which pays
severance to employees when companies go bankrupt). As a
measure of last resort, four workers mortgaged their homes in
order to buy material and carry on production. Salaries were
paid on a fractional basis – when possible.
Still, Izarbarri S.A.L. was not able to achieve financial
stability. In 1996 the business needed to be recapitalized, so
the workers took on personal loans to invest 750,000 pesetas
each and reduced their salaries by 13%. They elected a new
Administration Council who in turn restructured the
company’s management team. In April 1997, workers voted
on and started implementing a new feasibility plan; it included
downsizing measures and the founding of a new sociedad
laboral. The new SAL’s partners had to invest up to 2 million
pesetas, in addition to the sum they would get from the
capitalization of their unemployment compensation. The
company’s resources were truly modest, most machines were
obsolete and its real estate assets were mostly mortgaged.
Nonetheless, by the end of that year the company had
recovered its zest for success, and earned a profit of 226
million pesetas. The new SAL was named Herramientas de
Amorabieta S.A.L. and was composed of 124 partners. It
invested in cutting-edge technology and quality
improvements. Slowly, workers’ salaries increased, and in
1999 dividends were paid out for the first time to the worker-
owners. A bankrupt company had become a world-class
producer of cutting tools.
From 1999 to 2004, 2 million Euros a year were invested in
quality improvements and new products. Then in 2008, the
company moved into its new production plant, one of the
most modern facilities in the region. Finally, the workers
decided to rename the company “Izar Cutting Tools S.A.L.”
in order to revive the Izar brand’s old prestige. Today, the
firm employs close to 200 people – most of them partners. It
relies heavily on its exports (to 80 different countries), which
have been the key to its continued growth. Izar is the largest
manufacturer of cutting tools in Spain, as well as one of the
largest in Europe. It is an innovative company managed
according to the total quality model EFQM. It is also highly
committed to its Corporate and Social Responsibility, paying
special attention to enhancing social cohesion within the
company. Being a company based on its workers, their main
 goal is to develop long-term quality jobs. They are firmly
committed to finding the balance between human and
business development, which is in fact their true mission.

Table Table 6

Izar Cutting Tools S.A.L.

Main Data 2010
Net Turnover 17,634,454 €
No. Of Shares 368,295
Price per Share 8.29 €
Company's share of stock 9.3%
EBITDA 1,614,281 €
Equity 16,797,970 €
Share Capital 3,053,166 €
Number of employees 184
No. Of Worker-Owners 128
Izar Cutting Tools S.A.L. in 2010
Compared to Sector Companies
Financial Ratios IZAR Sector AVG
EBITDA Margin 9.15% 5.89%
Indebtedness 69% 53%
Financial Profitability 1.60% 1.35%
Productivity 1.34 1.20
Source: Own elaboration with data obtained from Izar Cutting Tools S.A.L.’s annual accounts and the annual
accounts of sector companies submitted to the Trade Register.

Corporate Governance

• Administration Council
As the highest government organ in the company, it
supervises and approves the work of company directives. It
works in a similar fashion as a Board of Directors in a PLC.
Its 7 members are chosen by the Shareholders General
Assembly (from the whole of worker-owners). They are
drawn from different areas of the company: production, sales,
purchasing, quality control, etc. Members are appointed for
five-year terms and perform their tasks without remuneration.
The Council meets with the General Manager at least once a
month to discuss all of the company’s most relevant affairs.
Additionally, there is a paid outside lawyer who functions as
Council Secretary, but is not a member. The presence of a
lawyer is legally mandated.

• Shareholders General Assembly

Resembling conventional PLCs, the Shareholders General
Assembly meets at least once a year to review the company’s
accounts, approve the work of the Administration Council and
elect its members. It also serves as a participation vehicle for
the company’s worker-owners.
• Company Committee
This is the workers’ formal organ of participation in
management. Its members are chosen from the whole of
company employees for four-year terms. They hold monthly
meetings with the General Manager in order to discuss work
issues and negotiate the terms of the company contract, which
affects 100% of employees.
• Management
The firm’s directors are in charge of strategy design and
company management. The General Manager heads the
group. The company is unionized and the General Manager
meets with the union every month.
• General Assembly
It meets at least once a year and serves to communicate the
company’s present situation and its future perspectives. It also
serves to answer any questions about the company.

The Advantage of being Worker-Owned

Izar is profoundly committed to the well-being of its

workers. The firm has weathered the current crisis better than
most companies in its sector largely because it is worker-
owned. During 2009, employees showed their commitment to
the firm by reducing their salaries up to 10% and decreasing
production hours to adjust to real market demand. Being
“worker-owned” gave Izar the flexibility it needed to swiftly
adapt to adverse economic circumstances. All measures taken
to keep the company afloat were approved and supported by
the workers and the Company Committee.
Despite the disastrous results of 2009, with its 33% decline
in client orders, Izar went on to create new employment in
2010 and added 10 employees to its workforce. It increased its
sales by 20% compared to the previous year. In addition,
salaries were restored to its previous levels. Furthermore, Izar
showed the commitment to its workers by continuing to allow
partial retirement of senior workers at age 60 and hiring only
permanent workers to replace them. In an economic
environment plagued by temporary workers, Izar made an
extra effort to behave in a socially responsible way. Only 15%
of Izar’s workers have a temporary contract, compared to 25%
of workers in the private sector. This shows the firm’s
devotion to creating high-quality jobs and ensuring the
welfare of its members.

Company Structure
Table 7
 Izar Cutting Tools S.A.L.
No. of
Year Buy-ins Buy-outs
Partners
2010 3 2 128
2009 5 0 129
2008 9 4 124
2007 14 3 119

In contrast to the company’s original partners in the 1990s

(who were forced to become owners), current partners are
owners by choice. As one of the workers expressed: “I was
excited to become a partner because I like my job, and above
all because I see my future in Izar. As worker-owners, we are
highly engaged, we cannot forget that we are putting our
money and our jobs on the line.” Izar is owned by 128 of its
184 employees (70%). There are no outside shareholders and
all permanent employees are owners. The main idea at Izar is
that every permanent worker should become partner. To this
effect, the firm created a company contract to regulate the
process. The contract came into effect in 2003 after being
approved by the majority of worker-owners. The main reason
behind its existence is to ensure that social interests prevail
over those of personal stockholders.
The company contract regulates the following:
• Acquisition of shares by new partners
• Selling of shares by workers leaving the company
• Share prices and the order of priority in acquiring shares.

• Distribution of dividends
The company contract provides a regulatory framework
that continually allows new partners into the company. By
establishing share prices, it eases the transfer of shares
between old and new partners, thus guaranteeing the firm’s
continued existence as a worker-owned company. New
employees wanting to become partners may buy in through a
wage deduction over a period of maximum 10 years. All of
Izar’s shares have the same rights and do not trade in open
markets. By contractual agreement, which is not legally
mandatory, the company buys back the shares of retiring
workers every year – ensuring all permanent workers have the
possibility to become partners.
Furthermore, the company contract generally favours the
distribution of dividends, but only after considering the firm’s
future stability. Historically, it has paid an average of 30% of
profits to its worker-owners as dividends. The company
reinvests around 70% of its profits back into the company, far
beyond the mandatory 10% required for the Special Reserve
Fund. As a worker-owned company, Izar aims to empower its
workers. It goes through great efforts to communicate the
social aspect of the firm, constantly holding information
meetings to instil new workers with a sense of pride and
belonging.

13.CASE STUDY: KOMUNIKAZIO BIZIAGOA S.A.L.

In 1998, Komunikazio Biziagoa S.A.L. was founded as a

worker-owned company; however, its origins date back to
1919 – year in which the Capuchin Order created Zeruko
Argia (The Light of Heaven), a religious magazine in the
Basque language. Then in 1921, the weekly news journal
Argia was born. Komunikazio Biziagoa S.A.L. is the proud
heir of these two publications. During the 1960s, the years of
resistance against dictator Francisco Franco, Zeruko Argia
promoted the work and progress made by the Basques. In
1997, it became the first communication medium in the
Basque language to enter the Internet.
In 1998, after considering the various legal forms available
in order to adjust the business model to the times,
Komunikazio Biziagoa S.A.L. was founded. Today, it is the
publisher of ARGIA (The Light), a weekly magazine whose
main goal is to be an information source for citizens wanting a
better world, and a better Basque Country. Its main challenge
is to reach readers every week, allowing them to feel well
informed about the reality in the Basque Region.
The workers of Argia are the business owners in every
sense of the word. They engage in all decision-making, which
guarantees their continued independence. As a worker-owned
company, the business revolves around its workers. Even
though becoming partner of Komunikazio Biziagoa is
optional, more than 86% of workers are partners. Being a
communication medium, its credibility is of utmost
importance – maintaining worker-ownership is key to its
independence. To make this all work they have established
trust, communication, and equality as their fundamental
values. According to general manager Berdaitz Goia: “every
worker has his or her own responsibility, but we are all equal;
it’s a completely flat organization”. Workers are free to
choose their subjects as well as the stand they will take on
them.
Komunikazio Biziagoa S.A.L. in 2010
Compared to Sector Companies
Financial Ratios Kom. Biz. Sector AVG
EBITDA Margin 4.11% 0.27%
Indebtedness 24% 188%
Financial Profitability 0.96% -7.44%
Productivity 1.06 1.01
Table 8 Table 9

Komunikazio Biziagoa S.A.L.

Main Data 2010
Net Turnover 807,629 €
 No. Of Shares 16,664
Price per Share 6.01 €
Company's share of stock 0%
EBITDA 33,194 €
Equity 611,722 €
Share Capital 100,153 €
Number of employees 23
No. Of Worker-Owners 19
Source: Own elaboration with data obtained from Komunikazio Biziagoa S.A.L.’s annual accounts and the annual
accounts of sector companies submitted to the Trade Register.

The Advantage of being Worker-Owned

The company considers itself as having no employees, only

truly motivated partners. Workers are firmly committed to
their work; this level of compromise is only possible coming
from owners. The prevailing culture focuses on employee
participation in all decision-making processes – task
delegation is essential. Sometimes, employees even have to be
reminded of the freedom they have to make decisions.
Komunikazio Biziagoa workers’ double status as owners and
employees allows them to establish sustainable growth
policies, practice financial restraint, and reinvest profits to
ensure the company’s future.

Company Structure

The company’s capital stock consists of 18,964 shares

valued at 6.01 € each. The minimum holding is 500 shares
(3,005.06 €). Total stock is 113,975.93 €.
There are two types of shares:
Type A Shares: They are reserved for employees,
• without exceptions. These shares have voting rights.
• Type B Shares: They are reserved for companies
belonging to the corporate group, or employees of these
companies who were formerly partners of Komunikazio
Biziagoa. They do not have voting rights.
The company has a total of 23 partners: 20 worker-owners
(who own type A shares) and 3 companies belonging to the
corporate group. The percentage of type A shares owned by
each worker ranges from 2.64% to 7.91%.

Table 10

Komunikazio Biziagoa S.A.L.

No. of
Year Buy-ins Buy-outs
Partners
2011 4 0 23
2010 3 0 19
2009 3 1 16
 2008 2 1 14
2007 1 0 13

Workers own 75% of the company, while the companies

belonging to the corporate group own the remaining 25%. To
ensure the business’s continues to be employee-owned,
workers leaving the company must sell back their shares.

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LEGISLATION

SPAIN. LEY 4/1997, de 24 de marzo, de Sociedades

Laborales. B.O.E., 25 de marzo.

SPAIN. REAL DECRETO 1300/2009, de 31 de julio, de

medidas urgentes de empleo

destinadas a los trabajadores autónomos y a las cooperativas y

sociedades laborales.
Boletín Oficial del Estado nº 200, de 19 de agosto.

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Available at:
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INSTITUTO NACIONAL DE ESTADISTICA. (Date

Consulted: 15 February 2012). Available at:
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MINISTERIO DE EMPLEO Y SEGURIDAD SOCIAL.

(Date Consulted: 15 February 2012). Available at:
http://www.meyss.es/es/estadisticas/index.htm