One type of business model that is increasingly popular across the United States is the cooperative model. Although cooperatives can take many forms, they are distinguished by the fact that the owners are also typically the individuals who work for the company or benefit from its services. This means that, unlike in a corporation where profits are passed on to shareholders or owners who may interact only tangentially with the workings of the company, profits from a cooperative are returned to those who use the services that the company provides or those who work for the company.
Types of Cooperatives
There are three main types of cooperatives that may be formed, depending on the interests of the group. Consumer cooperatives are created when like-minded individuals wish to obtain certain items together, such as a grocery cooperative or a bakery cooperative. Producer cooperatives are formed when certain individuals wish to jointly market and sell items together in order to pool their resources, expand their reach, or obtain better prices. Common examples include dairy cooperatives or coffee cooperatives. Finally, there are also worker cooperatives that are formed when a group of individuals wish to work together to offer a good or service. In a worker cooperative, rather than offering their money or their product, workers offer their time. One example is a restaurant cooperative.
Cooperatives may be structured like typical businesses in many respects, but they provide greater weight to the voices of all members, resulting in decisionmaking that occurs in a highly democratic fashion. Thus, while members may elect individuals to serve as officers and a board of directors to help handle the day-to-day running of the cooperative, major decisions are typically made through the voting of all members. Any individual who is interested in using the services that the cooperative provides may buy into the cooperative and become a member by purchasing shares of the cooperative. Unlike with traditional shareholders, one does not gain more power as a member of a cooperative by purchasing more shares. Instead, each member’s voice is entitled to equal weight. These are often important principles that underlie the formation of a cooperative: democratic decision-making and control, equal economic participation, and open accessibility for all.
Forming a Cooperative
Depending on the state, a cooperative may be formed as a regular corporation or LLC with a cooperative intent or under specific cooperative organization laws.
Formation of a cooperative, like most business types, varies by state. Additionally, because of the unique nature of cooperatives, they typically require the initial members to spend more time carefully contemplating the nature of the potential business, its purposes and structure, and how it will be run. If, after coming to an agreement concerning the potential business, the members wish to incorporate, they must follow some of the same requirements imposed on normal corporations, including filing articles of incorporation, creating bylaws, obtaining the proper licenses and permits, and electing initial directors. Additionally, since cooperatives are membership-driven, many states require incorporating cooperatives to develop prospective membership applications that detail the requirements of membership and its benefits. One important factor to note during the formation process is that, because of their membership component, most cooperatives cannot be terminated, or closed, in the same fashion as a small or privately owned business. It may be important to clearly set forth an agreement on how decisions whether to continue or end the cooperative will be made.