Co-op

Co-operatives, or co-ops, are a unique business model distinct from business corporations. They were originally intended as a way for people to share resources and are designed to promote equity, create a healthy work environment, and support collaboration.

“A co-operative is a legally incorporated corporation that is owned by an association of persons seeking to satisfy common needs such as access to products or services, sale of their products or services, or employment.” – Innovation, Science and Economic Development Canada

They can be for-profit or non-profit, and their goal is to minimize business costs to allow more people to participate. You can incorporate your co-operative either federally or provincially/territorially – but there are some geographical differences in regulations (especially in Quebec).

Even if a co-op is non-profit, it can still charge for its products and services. However, any profits made must be reinvested into the business.

Four broad categories differentiate co-ops from share (business) corporations: ownership, directors, voting, and profit.

Ownership

  • In a co-op, shares cannot change in value. When members join, they buy shares at par value, which doesn’t change even if the business is wildly successful (or fails).
  • Membership shares can’t be transferred as freely as in a business corporation. A co-op share cannot be sold to anyone else and can only be bought back by the co-op at the same value the member originally bought the share at.
  • Ownership is independent of value. The amount of ownership is determined by the number of membership shares held.
  • Members sell their shares back when exiting. If a member wants to exit a co-op, their share must be repurchased at the same value the member initially bought it at. If the co-op doesn’t have enough money, they can enter into an agreement where the co-op pays you out over time.

(In contrast, a business corporation is owned by shareholders who invest money and receive shares in return. These shares can increase or decrease in value depending on the business’s financial health. Shareholders have voting power proportional to the number of shares they hold.)

Directors

The number of directors required varies across Canada, typically three. Directors are responsible for the day-to-day governance of the co-op and must always act in its best interests.

Voting

In a co-op, the core value is “one member, one vote,” no matter how many shares are held. This contrasts with a business corporation, where the number of votes can increase with the number of shares held.

In a federal worker co-op, each member has to be an employee. There’s also a rule that 75% of the membership must be employees, but the other 25% can be investment-type shares issued by the co-op.

Profit

When a co-op makes a profit and distributes it to its members, it’s called a “patronage return” — similar to a dividend. Someone who has five membership shares will be entitled to more surplus than someone with one membership share. But again, holding more membership shares does not increase your number of votes.

A surplus remains after all costs, including operating and general reserve (and bonuses or patronage returns if you choose), have been covered.

While co-ops can accept investments, they’re traditionally not profit-oriented entities. This lack of a profit-driven structure and limited shares can restrict growth and deter some investors. Be sure you’re okay with that.

That being said… we believe co-ops are the worker-centric structure of choice, and we’re proud to have invested in Montreal-based worker co-op Lucid Tales. And our first Baby Ghosts grantee was Winnipeg-based co-op Something We Love!

Questions to ponder

When thinking about forming a co-op, consider the following:

  • How will you handle surpluses at the end of the year?
  • How will you manage the governance of your co-op?
  • What happens when someone wants to exit the co-op?
  • How will you handle disputes?

A thorough guide to federally incorporating a co-op, and contact information for provincial associations can be found on the ISED site. If you‘re in Quebec, you can find more information at Ministère de l’Économie, de l’Innovation et de l’Énergie or get help from le Réseau Co-op.