Solidarity Cooperatives: Definition, Operation and Advantages
Coopérative
Article
•June 20, 2023
•1 minute read
Demystifying How Cooperatives Work
Coopérative
Kickoff
The inner workings of cooperatives are
simpler than you might think! The co-op is essentially a business model that lets you build
a company aligned with your values while sharing both the wealth and risks among its
members. It empowers members to make decisions, stay involved and participate democratically
in the enterprise’s growth. In short, it is a chance to achieve something greater than
yourself.
In this article, we demystify how cooperatives
work.
What is a
cooperative?
A cooperative
is:
A group of
individuals or companies who jointly decide to meet various shared needs by
operating an
enterprise in accordance
with the Rules of
Cooperative Action.
These rules, which are recognized by the International Cooperative
Alliance, are the
following:
- Voluntary and open membership
Cooperatives are voluntary organizations, open to anyone
able to use their services and willing to accept the responsibilities of membership, without
any form of discrimination.
- Democratic member control
Cooperatives are democratic organizations controlled by
their members, who actively participate in determining policies and making
decisions.
- Economic member participation
Members contribute equitably to, and democratically
control, the capital of their cooperative.
- Autonomy and independence
Cooperatives are autonomous
organizations.
- Education, training and information
Cooperatives provide training for their members, managers
and employees so these latter can contribute effectively to the development of the
business.
- Cooperation among cooperatives
(“intercooperation”)
Cooperatives serve their members most effectively and
strengthen the cooperative movement by working together through local, national, regional,
and international structures.
- Concern for community
Cooperatives work for the sustainable development of their
communities through policies approved by their members.
A business model that serves its
members
How does the cooperative stand out from other business
models? It is a distinct legal status. In Quebec, cooperatives are established under
the Cooperatives Act. Power is exercised democratically. Likewise, members join a
cooperative to access various services or products at the best possible cost or so their
community benefits. In addition to meeting common needs, members also have shared values.
For example, democracy, equality and support for community development are at the heart of
all cooperative enterprises.
Curious to learn more about the legal side of
things? The Ministère de l’Économie
et de l’Innovation has posted frequently asked questions on the subject [French only].
10 advantages of the cooperative
model
Cooperatives offer an array of advantages. Thanks to the
pooling of their members’ resources and expertise, cooperatives have a higher survival rate than other business models!
For example, in Quebec, after 10
years of operation, 44% of cooperatives are still in business, compared to just 20% of other
models. This statistic speaks volumes to the strength of this business
model.
Here are 10 additional advantages of the cooperative
model:
- Pooling resources
- Managing the business democratically
- Facilitating the takeover of an existing
business - Bringing together entrepreneurs to maximize their
results - Building and maintaining collective wealth over
time - Qualifying for certain tax advantages (CIP and Co-op
RRSP). - Distributing patronage dividends based on each member’s use of the
coop’s services - Limiting members’ financial responsibility to the capital they
invested - Combining economic profitability with social
success - Holding principles of solidarity, sharing and
equity
How to structure a cooperative
business
Remember that, in addition to being an association of
individuals or companies, a cooperative is also a business. To ensure optimum performance,
it therefore has different components, which include:
- ASSOCIATIVE
STRUCTURE
An associative structure is what ensures that the company operates democratically. A
cooperative typically consists of a general meeting and a board of directors. The board can
have between 3 and 15 members. During the general meeting, members determine the direction
of the business based on the principle of “one member, one vote.”
- ORGANIZATIONAL
STRUCTURE
The organizational structure of a co-op is similar to that of private companies, including its
general management, administrative teams, staff and so on. This ensures operations meet the
needs of the members and therefore varies according to the size and nature of economic
activities. The cooperative’s management and staff may also be members and participate in
decision-making.
- FINANCIAL
STRUCTURE
The financial structure of a co-op is unique to this model, as surpluses belong to
member-owners, who can determine how profits will be distributed or allocate them to the
general reserve for future investments. Are you familiar with patronage dividends? Indeed,
the board may also choose to distribute profits to members in the form of patronage
dividends, proportional to each member’s use of the cooperative over the past
year.
In short, these structures enable the cooperative to be run
on behalf of its members. They also ensure that the company combines economic profitability
and the fulfilment of its social mission!
To find out more about the structure of a cooperative, visit the
website of the Quebec Ministère de l’Économie, de l’Innovation et de
l’Énergie.
Types of
cooperatives
Over the last century, cooperatives have played a key role
in Quebec’s economy and operate in a wide range of sectors. The cooperative business model
can be adapted to suit different groups, settings and economic spheres. Most importantly, it
is conducive to developing businesses capable of meeting a variety of needs,
including:
- Obtaining a service (housing, local or neighbourhood services,
funeral services, etc.) through the consumer cooperative or the solidarity cooperative - Creating jobs or business successions through work cooperatives or worker shareholder
cooperative - Processing and marketing products through producers cooperatives
In Quebec, for example, there are five main categories of
cooperatives, though co-ops may have different economic activities and
goals.
Interested to learn more about the different types
of co-ops? Check out our article!
Interested in the cooperative business
model?
Our free webinar Going into Business with a
Cooperative is
the perfect opportunity to ask our experts your questions! In this training session, you’ll
see how strength in numbers sets the cooperative business model apart!
