Introduction
The word “co-op”
often brings to mind a small grocery store in a relatively affluent
neighborhood; its narrow aisles filled with bulk granola, tofu, and pricey
produce.[1]
While some co-ops do match that stereotype, co-ops can be and often are so much
more than that.
First, what exactly
is a co-op? Short for “cooperative,” the International Cooperative Alliance
defines a co-op as an “autonomous association of persons united voluntarily to
meet their common economic, social and cultural needs and aspirations through a
jointly owned and democratically-controlled enterprise.”[2] Put more simply, a co-op is
a for-profit or non-profit entity where members — not a board, investors, or a
CEO — have an equal say in how business is conducted. Types of co-ops include
●
Worker co-ops (people who work for
the co-op own the co-op)
●
Farmer and Independent Small
Business Co-ops
●
Purchasing co-ops (small
businesses joined together to improve their purchasing power)
●
Producer co-ops (producers of a
common product join together to market their goods)
●
Consumer co-ops (Customers who
purchase goods and services from the co-op own the co-op)[3]
Co-ops have existed
in some shape or form since the beginning of organized human society.
Historians have found evidence in ancient Egyptian, Greek, Native American, and
African early societies of humans cooperating together to increase their
success in hunting, farming, and building shelter.[4] The modern development of
the co-op dates back to the Industrial Revolution in England during the 18th
century, where rapid industrialization forced workers out of their small family
farms and home enterprises into cities.[5] There, they faced harsh
working conditions and turned to mutual aid and trade guild traditions to
develop cooperative business principles.[6] In the United States, the
first recognized cooperative business was a mutual fire insurance company
founded by Benjamin Franklin.[7] In
this way, co-ops are deeply ingrained in the fabric of this nation.
What distinguishes
co-ops from other kinds of businesses? Non-cooperative business ownership is
based on the percentage of the business a person owns, often determined by
investment.[8] For
example, if person A invested 70 percent into a business and person B invested
20 percent, then person A would be the majority owner with final say over how
the business proceeds. In corporations, terms of control are governed by who
owns the most shares.[9] The
more shares a person purchases, the more votes that person receives in
determining how the corporation proceeds. In co-ops, each member receives one
vote, which means all members have equal voting rights in how the co-op
conducts business.
Basic Steps for How to form a co-op[10]
- Form a Steering Committee of Potential Members: Ideally, the potential members will be drawn from the community
the co-op will be based in. The committee should research the level of
interest in the potential co-op and develop a mission statement and values.
- Conduct a Feasibility Study:
This more in-depth research process will help answer questions like what
market conditions will the co-op operate in? How will the co-op be
financed? What are the co-op’s operating costs?
- Draft Articles
of Incorporation and
Bylaws: Regardless of what state a co-op is in,
articles of incorporation must be filed, just like for any other
enterprise (like an s-corp, c-corp, 501(c)(3) non-profit, or LLC). Some
states, like Michigan[11],
have statutes that lay out specifically what requirements must be met in
order to operate as a co-op.
- Create a Business Plan and Recruit Members
- Launch!
Should You Form a Co-Op?
Co-ops are ideal for
an enterprise that has meeting the economic, cultural, and social needs of its
community as core to its mission. When the co-op does well, the whole community
it serves may benefit economically and culturally, rather than just a small
group of owners. On a more practical level, co-ops offer the lower debt and
liability risks that makes corporations and LLCs attractive, while providing
for more direct control of the business than businesses that are controlled by
the person or entity who invests the most.[12] Co-ops that are established
properly may receive tax advantages.[13] If a business is already
established, it can be converted into a co-op. For example, some business
owners may choose to sell their business to their employees.[14]
On the other hand,
co-ops come with some challenges. They can be difficult to finance because
investors may be deterred by the fact that a bigger investment will not
translate into a bigger return (because of the “one member, one vote”
principle).[15] For
this reason, a business idea with lower start-up costs (like a nail artist
freelance co-op, where the members already have their own equipment to paint
nails) may be better suited for a co-op. The very thing that makes co-ops
attractive — democratic control — can also be a drawback. Because every member
receives an equal vote on major business decisions, making decisions can take
more time than other more traditional businesses.[16]
Conclusion
Co-ops are a tried
and tested model for running a business in a more community-centric way. While
forming and running a co-op comes with challenges, it might be an attractive
option for businesses that prioritize self-help, self-responsibility,
democracy, equality, equity, and solidarity.[17]
[1] https://www.newyorker.com/magazine/2019/11/25/the-grocery-store-where-produce-meets-politics
[2]
https://www.ica.coop/en/cooperatives/cooperative-identity#definition-of-a-cooperative
[4]
https://www.grocery.coop/food-coops/history-of-co-ops
[5] https://resources.uwcc.wisc.edu/History_of_Cooperatives.pdf
[6] Id
[7] https://1752.com/
[8]
https://fitsmallbusiness.com/what-is-a-cooperative-co-op/
[9] Id.
[10]
https://fitsmallbusiness.com/what-is-a-cooperative-co-op/
[11] M.C.L.A. 450.3100
[12]
https://fitsmallbusiness.com/what-is-a-cooperative-co-op/
[13] Id.
[15] https://thecreativeindependent.com/guides/how-to-start-a-cooperative/
[16]
https://thecreativeindependent.com/guides/how-to-start-a-cooperative/
[17]
https://www.ica.coop/en/cooperatives/cooperative-identity#definition-of-a-cooperative