Types of Co-operatives
Pick the right model.
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). These producers recognize the cost of inputs and administration can be reduced through group purchasing. Likewise, they may be able to 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. They are also an efficient way to acquire resources. Some examples of these types of co-operatives include Home Hardware, Ocean Spray, and the Ashern Cattlemen’s Association.
The most recognizable of the types of co-operatives in Canada is the consumer model. In this type of co-op, those that use the service are also 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. Some of these sectors include telecommunications, child care, other forms of retail, and infrastructure services (e.g. water). Co-op examples include Mountain Equipment Co-op (MEC), Desjardins, and the La Ronge Daycare Co-operative.
These co-ops employ thousands of Canadians and contribute billions to the Canadian economy.
Worker co-operatives are owned and operated by their employees. This model has been used for succession planning in rural and Indigenous communities. In this case, business owners are retiring, which creates an opportunity for employees to acquire the business.
Being worker-owned does not restrict the co-operative’s ability to hire non-member staff or contract workers. Moreover, worker co-operatives have been formed in all industries, usually as an alternative to a partnership business model. Most often found as consulting firms, breweries, retails and manufacturing facilities, the model is versatile and can be adjusted to fit most situations. The major benefit being limited liability through incorporation.
Investment co-operatives are formed to create an opportunity for people to invest locally. Instead of local dollars going to Wall or Bay Street and supporting unknown entities around the globe, this platform provides local investors the chance to purchase shares and see a return on their investment.
Many investment co-operatives serve another purpose than simply wealth creation, such as solar energy and small business financing. The returns may not be as high as other investment opportunities. But, for people living in the area, the benefits are many. Job creation, investment readiness and attraction, business creation and increased social supports can all be the results of this type of co-operative.
Moreover, 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 deal with multiple different interest groups well. An opportunity may develop where there are people with money, those with knowledge and others with capacity. In this case, creating different classes of shareholder makes sense. For example, executive, employee and producer “classes” of shareholder.
The governance of these co-operatives can be contentious. Different groups may have conflicting visions for the organization or interests. But 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.The model provides greater flexibility in combining characteristics of both co-operatives and investor-owned firms. They are complex entities, but can do very well when done right.
New Generation Co-operatives often require a significant capital investment from shareholders. Most often this is required to create a value-added agriculture facility, such as a grain terminal or processing plant.
These unique businesses generally provide delivery rights to producers (ranchers, farmers, etc.), which better guarantees a stable price for their products. Plus, the business processes the products to add value, create jobs in the community and increased wealth for shareholders. In some cases, the businesses help retain vital infrastructure, such as rail, paved roads and electrical grids.
As you might expect, the primary function of housing co-operatives is to provide housing. Housing co-ops can be structured as for-profit (individual ownership of unit) or non-profit (collective ownership of facility). That said, 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 type of co-op 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. Finding the answers will help make clear what type of co-op to choose.
- Deliverable. What product or service will it provide?
- Purpose. Who will benefit from this co-operative?
- Market. Who should pay for the services?
- Ownership. Who should share the profits?
- Decision-making. Who should make up the board of directors?
As always, if you have further questions or would like to request support, please contact us.