You’re a smart, aspiring business owner, and you do your research. When you’re considering how best to set up your business for success, you may have come across “co-operative” as an option for a business structure. If your interest is piqued — but you’re not sure if it’s right for you — then read on.
Co-ops are a different way of doing business that allow people to work together to solve a collective problem.
A co-op can be any kind of business – from gardening to car sharing and beekeeping to health care solutions. If you’ve got a group of entrepreneurs working to solve the same problem, a co-op might be the solution. To figure out if a co-op is right for you, consider if these questions apply to your business idea:
Am I solving a problem for myself, or someone else?
Most entrepreneurs start businesses that solve someone else’s problem. For instance, a shoe manufacturer knows people need different kinds of shoes and they can make money selling them. Co-ops are different.
When entrepreneurs create a co-op it’s because they want to solve a problem that they have — that they can address by working together. Maybe they need co-working space so they can work remotely, or they want to lower their input costs by buying in bulk. Or perhaps they are a group of parents who all want to see more affordable childcare spaces in town. The purpose of a co-op is to provide goods or services to its owners. If your business solves a problem that you share with other entrepreneurs, a co-operative is a great fit.
Do I want to share ownership of the business?
Let’s recap – co-operatives are formed to solve a group’s collective problem. They do this by sharing ownership equally. By definition, a co-operative is owned by a group of people (called the co-op’s “members”), and in BC you’ll need at least three people to start one.
So, what does this shared ownership look like? In a co-op, it means every member gets one vote on important decisions. This ensures decisions are supported by a majority, and no single owner can call the shots. And, if the co-op is profitable, its profits are shared with the members based on how much you use the co-op; this is called issuing patronage dividends.
A co-op does business a little differently, but if this sounds like a good fit for your business, you should consider a co-op!
Should the business be incorporated?
Like a corporation or society, co-ops are incorporated businesses. Incorporating a business limits an owner’s liability, offers more options for raising money, and comes with some tax advantages. Once incorporated, a co-operative can sell shares to its members or investors, take on debt, issue bonds or member loans, and apply for grants. In fact, according to Statistics Canada, co-ops are much more likely to meet their fund-raising goals than other types of small-and-medium-sized businesses. Plus, co-ops can pay their patronage dividends before paying small business or corporate tax, which lowers their taxable income. That’s a win-win for the co-op and its members.
Does it sound like a co-op is the right fit for your business? If you’ve answered yes to these questions, then you might want to consider a co-op. Co-operatives First provides tools and resources you can use to get started, and its team of experts is here to help take your start-up from half-baked idea to investment-ready business. Get in touch to learn more.
Co-operatives First
This blog post was written for Small Business BC by Co-operatives First. Co-operatives First is a Saskatoon-based non-profit that helps entrepreneurs across western Canada start co-operative businesses. Through their online training and advisory support, they help entrepreneurs through every step of their start-up journey.
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