Cooperative

A cooperative is incorporated at the provincial, federal or territorial level. Although legislation applying to co-ops can vary, it has some key characteristics.

André Chatelain served as Senior Vice-President, Personal Services and Marketing at the Desjardins Group and is now a mentor for students in the Executive MBA program at Université de Sherbrooke. He shares with us his knowledge of cooperatives and their situation in Canada.

Who owns a cooperative?

Co-ops are jointly owned by their members. Usually, these individuals or member companies also use the cooperative’s products and services.

All members have equal voting rights. For example, members vote to elect the board of directors at the co-op’s annual general meeting.

Members also decide on the distribution of profits. During the meeting, it may be decided to set aside the profits for investment or to distribute them to members in the form of dividends. Dividends are distributed proportionally, based on the individual member's usage of the cooperative.

What is the legal status of a co-op?

Like a corporation, a cooperative is a legal entity. This means that it can own property, hold debts, and can even be sued.

This legal status is defined by law. You will have to choose a jurisdiction for your co-op. “In Canada, cooperatives fall mainly under provincial jurisdiction,” says André Chatelain.

However, you could also register a co-op under the Canada Cooperatives Act. This may be a good option if you plan to operate in several provinces.

Why choose to form a co-op?

Cooperatives are often born out of community initiatives to set up a business together, explains André Chatelain. The board of directors is accountable to the members, which makes this model a good fit for those who need specific services.

The social role of cooperatives

The unique characteristic of cooperatives is that they aim to meet mutual needs and aspirations. Cooperatives have a common identity, which has been defined since 1995 by the International Cooperative Alliance.

They share the following cooperative principles:

• voluntary and open membership
• democratic member control
• member economic participation
• autonomy and independence
• education, training, and information
• cooperation among cooperatives
• concern for the community

According to André Chatelain, cooperatives play a crucial role in reducing economic inequities. Today as wealth gaps are widening, cooperatives are seen as more equitable entities.

“Unlike shareholders who seek to generate returns, co-op members focus on getting the best possible service at a competitive price.”

However, he goes on to say that co-ops must remain competitive and cannot afford to run a deficit for very long. 

What types of cooperatives exist?

The categories of cooperatives vary depending on legislation, but they generally fit one of the following four types. Credit unions, which have their own regulations, are excluded here.

Consumer cooperatives

These cooperatives are formed by consumers who come together to buy goods or services. They often enable members to benefit from better prices and services, usually by buying in bulk.

“A hundred or so people could, for example, decide to start a housing co-op to offer and benefit from affordable housing,” explains André Chatelain.

Producer cooperatives

These cooperatives allow producers to pool their resources to buy equipment, sell their products or access larger markets.

For example, farm businesses in the same town could form a farm supply cooperative.

Worker cooperatives

These co-ops are owned and managed by their workers, who share both the responsibilities and benefits.

André Chatelain gives the example of a company that wants to shut down. Employees may decide to create a worker cooperative together to increase their purchasing power and acquire shares in the business.

Solidarity cooperatives

These co-ops bring together different types of members, who work together to achieve common goals. They are often created to meet specific social or community needs such as health or education services.

Can a cooperative get a business loan?

As a legal entity, a cooperative can apply for a business loan.

“Financing is often easier to obtain as a cooperative rather than as an individual, due to the financial and corporate leverage it provides,” according to André Chatelain. The financing process will depend on the project, its likelihood of success and the members involved.

What are the pros and cons of a cooperative?

The following table summarizes the main advantages and disadvantages of co-ops.

Is a cooperative the right fit for you?

Before going into business with others, carefully consider all potential risks and benefits.

Discuss at length how the business would operate, including how work and profits would be shared. It’s a good idea for new partners to start by creating a business plan and drafting a written agreement. Learn about the legislation that applies to co-ops and other business structures.

You’ll discover which model is best for your project by taking the time to do your research.

Next steps

Download our free business plan template to help you define who you are, describe your business and explain how you plan to achieve profitability.