What are Cooperatives?

An Intro to Cooperatives
When you’re thinking about starting a business, one of the first legal decisions you have to make is what structure to use. Limited corporation, partnership, limited partnership, and sole proprietorship are the models traditionally considered. This post is about another option that makes sense in some circumstances, the cooperative corporation, or coop. Coops are a business structure option often discounted, and they don’t make sense in every situation. Where you have a group of people facing a common problem though, and your value proposition is deeply based on solving that problem and building the loyalty and participation of that group, a cooperative might be a good fit. Coops are especially good at meeting needs “that neither the market nor the public sector fulfill.”[1] Mountain Equipment Coop, for instance, was built as a consumer cooperative because it was designed to meet a niche retail need, and to serve those consumers. Similarly, the Coop grocery store was built as a response to a lack of good grocery and gas options, and so it made sense to build it as a cooperative to serve member needs. Stocksy United is a platform coop that provides stock photos and whose members are the photographers who take those photos. Those photographers being members rather than employees or contractors gives them an extra incentive to have the overall platform succeed. Coops also have a built in set of principles that they have to operate under as mandated by the legislation that help them fulfill this vision of people coming together to solve a problem or meet their or their community’s needs:

1. Voluntary and open membership
2. Democratic member control
3. Member economic participation
4. Autonomy and independence
5. Education, training, and information
6. Cooperation among cooperatives
7. Concern for community[2]

 
So, what exactly is a coop? At its base, it is a corporation that has members instead of shareholders, and that is democratically controlled by those members. Profits are generally shared amongst the members, often based on use of the coop’s services, rather than strictly by number of shares. However, this is alterable by share structure choices. The basic idea is that members own and control the business. So, who are members? There are four basic options[3]:

• Consumer coops: These are often retail, but they can also provide services in other areas, like housing, healthcare, or childcare. The members are the users of those services or the purchasers at the retail outlet.
  
• Worker coops: In these coops, the members are the workers themselves, so the business is worker owned and democratically worker controlled.
  
• Producer coops: These coops are often agricultural, but can also serve artisans, or other independent entrepreneurs, who are the coop’s members. The coop helps to market and sell the things that those members produce.
  
• Other or multi-stakeholder coops: These are coops with a diversity of kind of members, but who serve the needs of and are controlled by “employees, clients and other interested individuals and organizations.”[4]
  • Investment coops: These are a kind of multiple stakeholder coop that blends the line between investment vehicles and cooperatives, and are kind of multi-stakeholder coop. However, they keep the focus on democratic decision making, ensuring that each investor, which is a member, still only has one vote. They also keep the focus on returning profits to members.
    

 
Once you’ve decided what kind of coop you are going to make, you should make sure that you are thinking about the cooperative in a way that makes it successful. Coops can be really powerful vehicles to meet the needs of people and communities, and do so in a way that puts those needs, not profits, first. But in order to do that, coops have to have a viable business case - they must be financially feasible. A feasibility study or a business plan aren’t necessary to creating a coop, but thinking about those kinds of things is important before you create a coop.
 
The basic legal steps to create a coop are pretty similar to creating a corporation. You must file an articles of incorporation, a summary of those articles and statutory declaration, a notice of address form, a notice of directors, and an incorporation fee of $100. These documents have to specify what kind of cooperative you are creating. You also have to complete a NUANS search to make search that your name isn’t being used by somebody else already. Full details on this process in Alberta can be found here: https://www.servicealberta.ca/1041.cfm.
 
Once the articles are filed and the coop is incorporated, you must create bylaws for the cooperative. Bylaws for cooperatives are a little bit different from, and a little more complicated than, a set of bylaws for a shareholder corporation. The Albertan government has created a list of Cooperative Act sections that have to be complied with for every section of the bylaws, and that can be found here: https://www.servicealberta.ca/pdf/coop/Bylaw_Requirements.pdf.
 
For more help creating a coop, you can find a list of coop developers and professional service providers for coops here: http://www.coopzone.coop/developers/members/region/Alberta/.

Matt Hammer is a member of the BLG Business Venture Clinic, and is a 3rd year student at the Faculty of Law, University of Calgary.

References:
[1] https://canadabusiness.ca/blog/why-start-a-co-operative-1/
[2] https://localinvestingyyc.ca/
[3] https://canadabusiness.ca/blog/why-start-a-co-operative-1/
[4] https://canadabusiness.ca/blog/why-start-a-co-operative-1/