Article
•July 19, 2022
•1 minute read
What Is the Difference Between a Cooperative and an NPO?
Coopérative
Kickoff
OBNL
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.
Cooperative or
non-profit: The answer in five questions
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!
QUESTION 1: WHO IS YOUR
PROJECT FOR?
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].
QUESTION
2: HOW WILL YOU FINANCE YOUR
PROJECT?
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.
QUESTION 3: HOW WILL YOUR
PROJECT TURN A PROFIT?
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:
- Creating employment in the region
- Setting up local community services
- Fighting poverty
- Preserving the environment
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].
QUESTION
4: WHO WILL THE STAKEHOLDERS
BE?
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.
QUESTION 5: WHAT LEGAL
STRUCTURE WILL GOVERN YOUR ORGANIZATION?
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.
Cooperative or
non-profit: The advantages of each model
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:
- Are collectively owned according to the very simple democratic
principle of one member, one vote - Involve their members at various levels to ensure the business’
sustainability - Give members the opportunity to participate in ownership,
decision-making and profits - Support self-financing, with members benefiting from surpluses via
rebates or interest on their investments in the form of shares. - Offers certain tax advantages (CIP and Coop RRSP) for
members
THE NON-PROFIT
Non-profits:
- Have a social mission and structure aimed at reducing
inequalities - Use a model based on close ties with the community, staff or
customers - Ensure that benefits are more broadly distributed at the local
level - Allow individuals to advance a cause they believe in and derive
satisfaction from contributing their time to this mission - Can issue charitable receipts if recognized as a charitable NPO by
Canada Revenue Agency
Interested in
collective entrepreneurship?
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.
Why not
contact our team to discuss your project?