What is a co-op?
A co-op is a business, owned by a group of people with a common interest who make decisions together and share in the business’ profits.
In western Canada, a co-op is created and run by a group of three or more*. It is legally incorporated, and can be a for-profit business or non-profit organization. And co-ops operate in almost every sector of the economy.
But what exactly is a co-op? That’s a bit more challenging. It’s simply a formal way for people to organize themselves and achieve a goal. It’s a pathway down which other people have gone before and, over time, this way of doing things has gained a process, procedure, and best practices. So, the co-op structure is just a template people use to get things done.
* Except Saskatchewan, where you need a group of six or more.
A co-op is what you make it
But a co-op is also what you make it.
The purpose of a co-operative may be selling more art, cows or milk; or it may be improving access to the internet, groceries or electricity. By choosing the co-op structure, people (or businesses) work together to access a service or good — and this becomes the business’ purpose.
For example, the value of a marketing co-op to an artist may be gaining access to more affluent buyers. In this case, the co-op’s purpose is to gain access to more lucrative markets.
How co-ops are different
Though co-operatives are a lot like other businesses, they have two key features that make them different:
- All members (ie: owners) have the same amount of decision-making power (“One member, one vote”).
- Co-ops give their profits back to members, based on how much a member uses the business, not how much they’ve invested in it.
Let’s take a closer look.
One member, one vote
Every member (owner) of a co-op gets one vote in important decisions — in co-op circles, this is referred to as the “one member, one vote” principle.
Other types of businesses don’t typically do this. In some, if you invest more money you get more votes, which gives you more power to influence decisions. That is not how a co-op works. Co-ops are designed so a person can’t buy more decision-making power. This helps ensure the purpose of the co-op always reflects what the members (owners) want.
Distribution of profit based on use
Profit (or surplus) is any money left over after a business has paid for all the things it needs to function — like rent, wages, inventory, etc. Co-operative businesses, like any other, create revenue and most aim to make a profit.
But what they do with this profit can be a bit different. Instead of this “surplus” going to shareholders based on how much of the company they own, it can be distributed to members based on how much they used the business that year.
What does it mean to be a member of a co-op?
Being a co-op member is not like being a member of a gym or Costco. In those cases, being a member is largely about a company creating loyalty. Co-op members own the co-op. As owners they are decision-makers and get a say in how the business is run. This means co-op members have different responsibilities than someone with a gym or Costco membership.
Members of a co-op can play a big role in the business, and often have a specific interest in common. For example, members may all sell specific products, like cows, fish, or art. Or they may all want a product or service, such as organic vegetables, electricity, or high speed internet.
Responsibilities of membership
Direction
Every co-op has a board of directors that oversees the business. It’s this board’s responsibility to make sure it is running properly. But it’s the responsibility of members to choose who runs on the board.
Initial Financing
Members raise the financing necessary to launch a new co-op. To get the business off the ground, members can contribute financially by buying membership shares, providing loans to the business, and fundraising (sometimes in the form of investment or preferred shares).
Crisis
Crisis can come in many forms. But, if a co-op hits hard times or decides it should close down? The members, as the owners, pitch in to help the business survive or navigate the process of shutting down.
So if you’re a member of a co-op you are an owner, a voter, an investor, and maybe also a lender, an advocate, a director.
Not all members will be this involved, of course. Some businesses or individuals join a co-op just to get a patronage refund or market goods. Often only a small number will take enough interest to help direct the business.
Features of co-operative businesses
Co-ops are a different — and sometimes better — way to do business. Here’s a few reasons why:
User ownership
A co-op is run by the people who want the good or service it provides. In other words, the people who use the business are the people who own it. And the decisions the owners make about the business are based on what they want and need.
This is a big difference. Most businesses are created for users, not by them. Because of this, co-ops have better insight into what their users want and need.
Plus, the one member, one vote system helps ensure the members retain control.
Profits
Because co-ops are run by people who use them, the main motivation for the business is service delivery, not profits. But just because they focus on delivering services doesn’t mean they’re not interested in making money.
For example, some co-ops’ members are independent businesses (rather than individuals). These types of co-ops decrease costs or deliver a good or service, to increase profits for the member’s business. Two common ways they do this are by saving money by buying in bulk, and providing access to markets.
Co-ops owned by their customers, on the other hand, may want to make big profits to give back to their members. For example, many western Canadian consumer co-ops return a portion of their profits to their members. This is called a “patronage payment” (because their share of the profit is based on how much someone patronized, or used, the business). This means the profits go to its member customers.
Limited liability
Incorporation is a process that makes a business into a legal entity that is separate from any of its owners. Because co-ops are incorporated, members have limited liability. This helps protect the members’ personal assets.
Stability
When times are tough, co-operatives weather storms better than other types of business. They tend to be more stable during economic downturns, and often last longer than other types of business.
Who’s in charge of a co-op?
As we mentioned, every co-op has a board of directors that oversees the business — and members make up the board. These directors are elected by the co-op’s broader membership at an Annual General Meeting.
Often the board hires a manager (if the business needs one) to run the day-to-day operations, and makes sure they’re doing their job. The board sets the co-op’s mandate and vision, plans its future, and makes sure it’s doing the things its members want it to do.
Boards have a lot to think about to lead a co-op effectively. That’s why Co-operatives First provides a lot of support and resources for directors. We have a workshop for new boards, an online course on governance, and tools, blogs, and podcasts for anyone to learn more.
Read more:
The 3 types of people you want around your board table
10 things you often aren’t told when you become a board member
Why diverse boards are rare and what to do about it
Why employees might make good board members
When to remove a board member and how to handle it
3 reasons no one came to your AGM
Related podcasts:
Getting people involved in board governance
Working boards versus policy boards
The importance of board diversity
The different types of co-ops
As you’ve probably heard, there are different “types” of co-operatives. They all adhere to the structure we’ve laid out above, so what’s the difference between different types?
A co-op’s “type” just indicates who its owners are. Consumer co-ops are owned by people who buy the business’ goods or services (consumers); producer co-ops are owned by the people who grow or make the stuff the business markets and sells (producers); and worker co-ops are owned by the people who work there. Simple, really.
Consumer, producer, and worker co-ops are the three main types, and most co-ops fit somewhere in one of these categories.
However, there are a few exceptions.
Multi-stakeholder co-operatives bring together different groups of people. Rather than their members falling into one category (consumers, for example), they have different membership classes for different interest groups (like both producers and consumers).
Community service (i.e. non-profit) co-operatives provide a service to a community of members, much like a non-profit organization. Common uses of this structure include community halls, recreation centres, and social programming.
Some great examples
While many people are familiar with a particular type of co-op, you can now see that literally any type of business can be a co-operative, including some businesses you’ve already heard of, and in places you wouldn’t expect.
Check out these stories about a few of the cool co-ops we’ve come across:
Food Forest and Learning Centre Co-operative
Glen Valley Organic Farm Co-operative
Neighbour Lab (podcast)