A co-operative is an incorporated business and this legal status comes with some distinct advantages. So, at what point should a group consider incorporating their co-op?
Strictly speaking, incorporation is the process of registering a business with the government. This process creates a legal entity separate from any other business or individual.
But it’s what an incorporated entity can do that makes having this status a big deal. Once your co-op is incorporated, it can open a bank account, take out a loan, own property, make donations, and hold licenses (among many other things).
Many of these things are critical during the start up process. So, incorporating your co-op early on often makes sense. Here are five reasons you should incorporate sooner rather than later.
The biggest advantage of incorporating a co-op is that it limits the liability owners take on personally. With limited liability, a co-op can enter into agreements, take on debt, and apply for programs on behalf of its owners. If the co-op were sued or had to repay debts, no individual owner would be personally liable for the co-op’s actions. Moreover, once you incorporate your co-op, it can purchase liability insurance to minimize the legal risks associated with operating a business. So, incorporate your co-op early on to decrease risk.
An incorporated business has credibility and an identity of its own. Simply having a name with ‘limited’ at the end gives a co-op more legitimacy. This legitimacy is particularly important when applying for funding or loans and partnering with other businesses. So, show people you mean business by incorporating early.
Access to Funding
Incorporation offers many options for raising start-up funds. Once incorporated, co-ops can issue shares, take on debt, create member loans, and raise capital far more easily than an individual. Likewise, many granting agencies require applicants to be incorporated to access their funds and won’t consider applications from individuals. And you never know when a new program or opportunity will present itself. So, incorporate your co-op early to be investment ready.
A Clear Set of Rules
Incorporating a co-op requires its owners to put some thought into how they want to work together. Agreeing on an approach to decision-making is a foundation of any successful business but is particularly important for democratically structured entities like co-ops. Getting buy-in from most of the co-op’s owners on these processes minimizes the chance for conflict and provides a process for dealing with challenges. So, incorporate early on to help your group make decisions efficiently and effectively.
Incorporating can also help a co-op obtain a business number and register for a GST account. These two formalities position operations to scale. Even if a group starts small, generating sales revenue builds the co-op’s brand, creates awareness among potential members and clients, and proves to funders they’re open for business. So, start early on.
Don’t let an opportunity pass you by. Incorporate early. To learn more, check out our “stress-free” incorporation process.