You have an idea – or a problem – and you’re looking for the best way to set up a
business solution to address it.
As you know, there are several options for creating a business or organization – a sole
proprietorship, partnership, corporation, non-profit organization. But there’s an option
you may not have considered: a co-operative.
Co-ops are a way of doing business that allow people to work together to solve a problem
that they share. A co-op can be any kind of business. They can be owned by groups of
parents or producers, consultants or care workers, artists or archeologists. They just
need to be owned by a group of people with a similar problem, who want to work
together to solve it.
A co-op’s defining features include:
- They are started and owned by a group of at least three people (who are called
‘members’) - They operate on a one-member, one-vote basis
- They distribute any profits they have back to members, based on their members’
use of the business.
So how can you tell if a co-op is the right fit for your business idea? Consider the
following situations:
1. You’re solving a problem for yourself and others like you
Most entrepreneurs start businesses that solve someone else’s problem – responding to
a gap they see in the market. Co-ops are different.
When people create a co-op it’s because they want to solve a problem that they have,
themselves. Using a co-op, they can join forces with other people who share that
problem and want to work together to solve it.
Maybe they need co-working space, or they want to lower their input costs by buying in
bulk. Or perhaps they are a group of parents who all need affordable childcare spaces, or
producers who would benefit from marketing their products collectively. The purpose of
a co-op is to provide a good or service its owners need, so if your business will solve a
problem that you share with others, a co-operative could be a great fit.
2. You want to share ownership and responsibility
As we mentioned, co-operatives are formed to solve a group’s collective problem. This is
great if you don’t want all the work and responsibility to rest on your shoulders and
would rather take strength-in-numbers approach.
The one-member, one-vote system ensures the power in the co-op is always evenly
distributed, and no single owner can call the shots. So if your goal is to be the CEO of
your business and make all the big decisions yourself, a co-op isn’t the right choice. For
others, though, who want to share the responsibility and workload, this can be a great
option.
3. Your primary goal isn’t profit
Because the main purpose of a co-operative is to provide its members with a good or
service they need, making a profit is secondary. The co-op needs to be financially viable,
of course, to continue to deliver on its mandate, but growing profits is not their first
goal.
That doesn’t mean co-ops can’t be profitable. If the co-op does make a profit, that
surplus can be distributed amongst the members based on how much they use the co-
op. These payments are known as patronage dividends. Surplus can also be used to
build the co-op’s reserve fund, re-invest in the business, or give to community
initiatives.
4. You want the benefits of incorporation
Like a corporation or society, co-ops are incorporated businesses. Incorporating a
business limits an owner’s liability, offers more options for raising money, and comes
with some tax advantages. Once incorporated, a co-operative can sell shares to its
members or investors, take on debt, issue bonds or member loans, and apply for grants.
In fact, according to Statistics Canada, co-ops are much more likely to meet their fund-
raising goals than other types of small-and-medium-sized businesses. Plus, co-ops can
pay their patronage dividends before paying small business or corporate tax, which
lowers their taxable income. That’s a win-win for the co-op and its members.
While a co-operative is not the right choice for every business venture, in certain
situations it is the perfect fit. So if the above criteria fits the goals you have for a new
business venture, consider whether a co-op might just be the right way to go.
This blog post was written for ATB by Co-operatives First. Co-operatives First is a non-
profit organization that helps entrepreneurs across western Canada start co-operative
businesses. Through their online training and advisory support, they help entrepreneurs
through every step of their startup journey.
