What is a co-op?

A co-op is a business, owned by a group of people with a common goal who make decisions together and share in the business’s profits.

In Western Canada, a co-op is created and run by a group of three or more people, businesses, or organizations. It is legally incorporated, and can be a for-profit business or non-profit organization. A co-op is created and owned by its members — its purpose is to provide the members with a good or service they want.

Why do people choose to create co-operatives? Usually, they want a good or service that no one else is offering, so they decide to get together as a group and create it for themselves. The ways groups can use the co-op model are endless: co-ops can be created to sell art, produce dairy products, improve access to the internet, or share cars. You can be as creative with the co-op model as you want, as long as it operates using the following rules and structure.

How co-ops work

Though co-operatives are a lot like other types of business, they have two key features that make them different:

All members (i.e., owners) have the same decision-making power (“one member, one vote”).
Co-ops return profits to their members based on how much each member uses the business, not how much they’ve invested in it.

Let’s take a closer look at these key concepts.

One member, one vote

Every co-op member (owner) gets one vote in member 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 that no one can buy more decision-making power. This helps ensure the purpose of the co-op always reflects what the members 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.

What co-ops do with their profit is different from other businesses. 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. We’ll talk about this more later.

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. 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 or goal in common. For example, members may all sell specific products, like meat, produce, or art. Or they may all want a product or service, such as organic vegetables, administrative services, or high-speed internet.

Responsibilities of membership

Governance

Every co-op has a board of directors that oversees the business. The board is responsible for ensuring the co-op runs properly, but members are responsible for choosing who serves on the board. Members are entitled to receive information about the co-op, participate in the AGM, and vote on matters decided by the members.

Initial Financing

Members raise the funding 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).

Not all members will be this involved, of course. Some businesses or individuals join a co-op 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 are 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. Unlike most businesses, co-ops are created by users, not for 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. It’s just not their primary focus.

For example, some co-op’s 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 businesses. 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

Co-ops are incorporated — 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.

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 our Client Stories page to learn about some of the cool co-ops we’ve helped to get started.

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