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February 7, 2020 Adrian Zee

What in the world is a co-operative?

If your goal as an entrepreneur is to help a community or group of people, then a co-operative may be for you.

Co-operatives are a big part of Canada’s economy. This could range from farming co-operatives that help farmers sell their products, credit unions where members can lend each other capital, or even a retailer such as Mountain Equipment Co-op. In 2017, 7,819 co-operatives existed across Canada, and, in 2015, non-financial co-operatives reported $44.1 billion in business. 

In this piece, we examine what a co-operative really is, what they’re used for, and how small business owners can benefit from one. 

What is a co-operative?

A co-operative is a democratically controlled business owned by its members to fulfil the common needs of its members. As opposed to a corporation, where decisions are made by the individuals with the most voting shares, each co-operative member has one vote—regardless of the capital they’ve invested into the organization. 

Business operations are financed through membership fees, the sale of equity, and loans.  And any profits are usually returned to members, but this is dependent on the co-operative’s structure. Some co-operatives may choose to retain their earnings for future expansions.

Canadian co-operatives generally fit into one of four categories: consumer co-operatives, where a product or service is provided to its members (think credit unions or day cares!); producer co-operatives, where the goods of members are processed and marketed (common for farmers or entrepreneurs); worker co-operatives, where employment is provided for its members; and, multi-stakeholder co-operatives, which serve a diverse set of people. 

Practical uses for a co-operative

Financial co-operatives

One of the best examples of a co-operative are financial co-operatives such as credit unions or insurance co-operatives. While banks and regular insurance companies are for-profit, their co-operative counterparts usually aren’t. This, in theory, means that a credit union or insurance co-operative puts its customers and members before creating shareholder value. Currently, one in five Canadians belong to a credit union, which they use exactly like a bank but with lower costs. Any profits from a credit union or other financial co-operative are usually returned to its members or to the community in the form of donations or other initiatives. 

Retail co-operatives

Retail co-operatives, where products and services are sold, are also popular, especially in the grocery space. These co-ops can often supply niche products that other retailers in Canada don’t carry. Mountain Equipment Co-op started out due to the owners being unable to find climbing equipment in Canada. Toronto-based grocery co-operative Karma Lane initially filled specialty diet niches, such as gluten-free and vegan, before they became mainstream. However, as both co-operatives face increasing competition from large corporations, they’re finding it harder to stay alive. This has forced retail co-operatives to provide unique products and services or face certain death. 

Finance and retail are only two of the many ways co-operatives are used. Agriculture co-operatives, where farmers band together to sell their goods, are also common. There are co-operatives for public utilities, housing, natural resources, and more. 

Where does this leave a business owner

As an entrepreneur, it’s important to choose the right business structure—whether it’s a sole proprietorship, partnership, corporation, or co-operative. A co-operative may not be a profit machine, but it’s important to not mistake it for a non-profit. Many co-operatives are highly successful and garner thousands of profitable customers. 

If your goal as an entrepreneur is to help a community or group of people, then a co-operative may be for you. It lets its owners maintain control through a democratic process, thus, one major investor cannot take control of the business. This is also a disadvantage as it detracts investors from investing—investors are disincentivized in investing more capital when investing less can provide them with the same amount of voting power. As a result, co-operatives commonly depend on its members for capital through membership fees.

Co-operatives are a powerful structure that help achieve goals that other business structures can’t. Large organizations such as Desjardins and Mountain Equipment Co-op are co-operatives because it allows them to put someone aside from the shareholders first, among other reasons. When deciding how to structure your business, don’t forget about co-operatives!

Adrian Zee

Adrian Zee is a freelance writer and a student at Osgoode Hall Law School. Previously, he studied management and writing at Western University and worked in the data & analytics industry. Adrian is also a part-time food writer and photographer at DailyHive/DishedTO.