Types of Co-ops
Pick the right model.
Co-operative businesses operate across every sector of the economy using a variety of structures to deliver services and to benefit their shareholders. Selecting the appropriate type of co-operative is important for an organization’s strategy and shareholder recruitment.
Here’s an overview of the types of co-operatives.
The thinking behind these is simple: the whole is greater than the sum of the parts. These co-operatives are created by producers (i.e. farmers, artists, businesses) that recognize they can reduce the cost of inputs and administration through group purchasing, and/or increase the value of their products by using a unified brand. Less money and time spent on doing these tasks individually means more money and time for the producer to produce.
Producer co-ops are a great way of achieving economies of scale or acquiring resources that will benefit shareholders. Some examples include Home Hardware, Ocean Spray, and the Ashern Cattlemen’s Association.
The most recognizable type of co-operative is the consumer model, and it is also the one where those that use the service are the shareholders.
In Canada, this is a popular model for organizing banking services (credit unions) and gas and grocery stores (Co-operative Retailing System), but the model can be applied to other sectors including telecommunications, child care, other forms of retail, and infrastructure services (e.g. water). Some examples include Mountain Equipment Co-op (MEC), Desjardins, and the La Ronge Daycare Co-operative.
Worker co-operatives are owned and operated by their employees. This model has been used in succession plans in rural and Indigenous communities where business owners are retiring, allowing the workers to acquire the business.
Being worker-owned does not restrict the co-operative’s ability to hire non-member staff or contract workers. Worker co-operatives have been formed in all industries, usually as an alternative to a partnership business model, including consulting, breweries, retails, and manufacturing. The major benefit of organizing this way is the limited liability through incorporation.
Investment co-operatives are formed to provide investors a platform to purchase shares and see a return on their investment – often in a way that brings wealth back from Wall Street, Bay Street or around the globe to a community or region. Many investment co-operatives are created to serve another purpose in addition to wealth creation, including solar energy production and small business financing.
Investment co-operatives often sell shares and some allow shareholders to invest a portion of a RRSP or TFSA in the business.
Multi-stakeholder co-operatives are formed when there are multiple different interest groups that would benefit from being included in the co-op. For example, executive, employee and producer “classes” of shareholder.
The governance of these co-operatives can be more contentious as different groups may have conflicting visions for the organization or interests. Having a good set of bylaws that provide clarity for procedure can help minimize conflicts.
New Generation Co-operatives
New Generation agriculture co-operatives have their own legislation in the western provinces allowing greater flexibility and combining characteristics of co-operatives and investor-owned firms.
New Generation Co-operatives often require a significant capital investment from shareholders to create a value-added agriculture facility, such as a grain terminal or processing plant. They are developed to provide delivery rights to producers (ranchers, farmers, etc.) that want a stable price for their products, and also process the products to add value, create jobs in the community and wealth for shareholders.
As you might expect, the primary function of housing co-operatives is to provide housing. Housing co-ops can be structured to be for-profit (individual ownership of unit) or non-profit (collective ownership of facility); however, many provincial regulations require housing co-operatives to incorporate on a non-profit basis.
Housing charges are determined by the collective cost of the co-operative and are shared equitably among the co-op’s members. This is often used as a solution for low-income housing. The Co-operative Housing Federation of Canada (CHF) upholds a list of all Canadian housing co-ops, as well as vacancies.
Community Service Co-operatives
These co-operatives are typically non-profit and often perform a social function in the community. Usually formed with an open, non-share capital, membership, community service co-operatives allow anyone to participate in their governance. Common uses of the model include community halls, recreation centres, and social programming.
These co-operatives often rely on volunteers to lead their governance and therefore require a large membership to ensure continuity.
Some examples include Crocus Co-operative, Access Communications, and the Association of Co-operative Counselling Therapists of Canada.
Questions to consider in making a decision on which model to use.
Here are a few questions to consider when forming a co-operative that will help make clear what type of co-op is needed:
What service will this business provide?
- Who will benefit from this co-operative?
- Who should pay for the services?
- Who should share the profits?
- Who should make up the board of directors?
As always, if you have further questions or would like to request support, please contact us.