You have a business idea, but are not sure whether a cooperative or a non-profit organization (NPO) would be the best fit for your venture? You do know though that collective entrepreneurship definitely interests you.
You have come to the right place! In this article, you will discover the unique features that distinguish non-profits from cooperatives.
Determining whether a cooperative or non-profit is the best legal structure for your collective business can be challenging. Here are five questions to guide your decisionmaking!
Does your project address a common need felt by a group of individuals or businesses or the community (neighbourhood, village, region, etc.)?
A cooperative brings people together primarily to meet the common needs of its members. That is why the organization’s focus is on its members. In contrast, an NPO typically works to address broader community needs, and its objectives must be purely social, charitable, cultural, philanthropic or altruistic.
Want to find out more? Click here to learn more about the importance of members in a co-op [French only].
The financial package for NPOs typically is built around grants and other contributions. To secure start-up capital, however, a cooperative relies on the economic participation of its members. This member involvement is a major leverage in financing the business!
In both cases, to prepare your search for financing, it is invaluable to get advice from the experts.
An NPO usually gathers people to develop educational, cultural, environmental, sports or community activities. The organization is, therefore, not aiming for profitability but rather for financial viability to be able to carry out these activities. This may or may not involve the sale of products and services. In other words, an NPO does not aim to make a profit or to provide its members with economic benefits. Instead, its success is measured by its ability to fulfil its community obligations.
Cooperatives, on the other hand, focus not only on generating surpluses but also on meeting the needs of their members and improving quality of life in their communities. These businesses strive to be competitive in the marketplace while upholding social principles. For example, a cooperative may seek to improve quality of life by:
The economic profitability of a co-op consists of generating collective wealth.
Take a look at our article and video on the subject [French only].
When a project requires significant involvement from volunteers and community members, the NPO is generally the most appropriate legal structure.
For cooperatives, it can be suitable for a group of individuals or companies pooling their resources to address common needs, such as selling products or services or creating jobs. The cooperative is also the right legal structure if your goal is to give members control and power within the business.
From a legal standpoint, the general meeting of an NPO has very limited powers: electing the board of directors, ratifying by-laws, appointing the auditor and receiving reports and balance sheets. NPOs are governed by Part 3 of the Companies Act.
In a cooperative, the power lies with the members—those who use the cooperative’s services as consumers, employees or producers. However, this in no way hinders the cooperative from pursuing a social, cultural or environmental mission. In fact, more and more young people are founding cooperatives to work differently or take professional action on social, cultural and environmental issues.
The legal framework for cooperatives is precisely defined under the Quebec Cooperatives Act, which outlines members’ rights and powers.
Each business model has its own set of advantages. To simplify your decision-making process, here are a few that are worth considering.
THE COOPERATIVE
Among other things, co-ops:
THE NON-PROFIT
Non-profits:
Whether through a cooperative or an NPO, if you are here, it is because collective entrepreneurship appeals to you. Comparing different legal structures for your business requires careful consideration.