One of the first decisions that any business owner has to make when starting a new business is choosing the business structure for their operation. The three most well-known business structures include the sole proprietorship, the partnership and the corporation.
While these are the most prevalent types of business structures, it is important to know that there is a 4th structure that operates the organization on communal and democratic principles: the co-operative. A co-operative is an organization that is owned and controlled by its members. They are often formed when a group of individuals comes together to meet a common need, and they can be for profit or not-for-profit. Business decisions made by a co-op are made democratically, with one member receiving one vote.
There are several reasons why you may wish to create a co-op. Some of these may be:
- To provide a service that other forms of enterprise are not offering, or to provide it in a different way.
- To keep a community or business alive when a private model is no longer able to.
- To keep profits and control of the business locally, and to ensure that profits are re-invested in the company and shared with members.
Co-op’s also may include less risk, as they grant their members limited liability should something go wrong. Perhaps the most prevalent example of a co-op is the credit union. These organizations offer similar services to banks, but are controlled by their members and re-invest their profits to members and the organization.
The co-op model is certainly not for everyone. Most new business owners wish remain in full control of their operation, something that a co-op precludes. Likewise, the slower decision making process of a co-op can lead to conflict and there is less incentive to invest additional capital. This should not be dissuasive, a co-op is simply a niche structure, and can nonetheless be a fulfilling and rewarding venture to undertake. The democratic nature can make membership and the decision making process an attractive feature for bringing new members, as well as the knowledge that your investment is controlled locally by your peers.
For any question on co-operatives, or any other business structure, contact us at
Halton Small Business Centre
Phone: 905-825-6000 x7900
For more information on starting a co-operative in Ontario, click here.