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Perks and snags of cooperative businesses

By Samantha Garner | July 20, 2013

cooperative_businessA cooperative business – which is organized and controlled by its members – is an association of people who want to satisfy common needs. There are about 40,000 cooperatives in the USA and about 8,800 in Canada. If you’ve stayed at a Best Western hotel, or shopped at a Co-op grocery store in Canada, you’ve done business with a cooperative organization.

Members pool resources and each member gets one vote on major company issues. Membership is open and voluntary, and members may receive dividend payments – their portion of the company’s profits – if the cooperative is profitable and dividends are provided for in the by-laws. Users or stakeholders of the cooperative usually include consumers, producers, workers or multi-stakeholders.

A cooperative may be formed in accordance with the Canada Cooperative Associations Act once it has business locations in at least two provinces. A co-op can also be formed in accordance with a territorial cooperative status, which outlines its corporate form and mode of operation.

Here are some perks and snags of a cooperative business.

Perks

  • Limited liability.
  • Profit distribution in proportion to use of service.
  • One member, one vote (democratic control).
  • Owned and controlled by members.
  • Greater ability to respond to community needs.
  • Community development in remote areas can be stimulated as a spin-off from a cooperative activity.
  • The survival rate of co-ops is higher than that of private sector companies.
  • Life of the company doesn’t end with the death of a shareholder.

Snags

  • It takes longer to make decisions.
  • Record keeping requirements are extensive.
  • Less incentive to invest additional funds — members having the larger investment have no advantages over smaller contributors.
  • Conflicts may develop between members.
  • Members must participate for the success of the cooperative.

 

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