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.
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:
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.
Cooperatives are democratic organizations controlled by their members, who actively participate in determining policies and making decisions.
Members contribute equitably to, and democratically control, the capital of their cooperative.
Cooperatives are autonomous organizations.
Cooperatives provide training for their members, managers and employees so these latter can contribute effectively to the development of the business.
Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures.
Cooperatives work for the sustainable development of their communities through policies approved by their 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].
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:
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:
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.”
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.
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!
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:
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!