Co-operative

There are two types of co-operatives:

• Distributing co-operatives: can distribute any annual profits to members. A distributing co-operative must have share capital and members must own the minimum number of shares specified in the co-op rules
• Non-distributing co-operatives: can’t share profits with members. All profits must further the co-operative’s purpose. It may or may not issue any shares to members. If the co-operative does not have share capital it usually charges members a regular subscription fee. For taxation purposes, non-distributing co-operatives meet the ‘not for profit’ definition.

There are key elements you should know if you’re looking at starting your business as a co-operative:

• a minimum of 5 members is required
• they are governed by a board of directors that is elected by the members
• all members must maintain an active relationship with their co-operative by using or contributing to its main activities
• all active members have an equal vote at general meetings regardless of their shareholding
• co-operatives are limited liability entities, meaning that members have no direct responsibility for debts of the co-operative
• directors of the co-operative owe legal duties to the co-operative and under the law that may lead to prosecution and compensation if they are negligent, reckless or fraudulent in carrying out their responsibilities
• co-operatives are formed to provide services to their members rather than to maximise a financial return on investment
• members are rewarded by having access to less costly or better goods and services, these rewards may be in the form of rebates, or for distributing co-operatives, there may be limited dividends on their shares
• anyone who can comply with a co-operative’s rules can apply to be a member, with the directors making decisions about the suitability of applicants
• members, other than directors, can be under 18, though these members cannot stand for office and do not have the right to vote

All co-operative members must be active, the types of members include:

• Customer-owned co-operative: members jointly purchase goods and services, improving value for money and access to expert advice.
• Worker-owned co-operative: members of a worker co-operative are the employees of the co-operative and the co-operative provides work for its members.
• Producer-owned co-operative: smaller businesses can group together in producer-owned co-operatives to share supply chain costs and reach markets.
• Multi-stakeholder co-operative: formally allow for governance by representatives of two or more stakeholder groups within the same organisation.