What is a cooperative?
As per the Canadian government, a cooperative (also known as a coop or co-op) 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. While cooperatives serve a wide variety of functions, they generally fit one of the following four types:
- A consumer co-op provides products or services to its members (such as a retail coop, housing, financial, health-care or child-care co-op).
- A producer co-op processes and markets the goods or services produced by its members, and/or supplies products or services necessary to the members' professional activities (such as independent entrepreneurs, artisans, or farmers).
- A worker co-op provides employment for its members. In this type of co-op, the employees are the members and the owners of the enterprise.
- A multi-stakeholder co-op serves the needs of different stakeholder groups—such as employees, clients, and other interested individuals and organizations. This type of co-op is usually found in health, home care and other social enterprises.
In Canada, a cooperative must incorporate under a specific cooperative Act at the provincial, territorial or federal level. These Acts govern all types of cooperatives, with the exception of financial cooperatives which are governed by separate legislation. The nature of the cooperative business model and how they operate is largely defined by these Acts. Whatever the governing Act may be, cooperatives share three common characteristics in areas of ownership, governance and distribution of profits.
Ownership: A cooperative is a business jointly owned by its members who use its products or services. In some cases, cooperatives can have members who do not use its services or products (e.g. support members, investor members).
Governance: Cooperatives are democratically controlled businesses with the governing principle “one-member, one-vote”. This right is exercised at the cooperative's annual general meeting (AGM), where members can vote directly for the board of directors. This democratic governance structure is reinforced by the cooperative's by-laws and the legislation under which the cooperative is incorporated (provincial, territorial or federal).
Distribution of Profits: Any surplus of a cooperative is owned by the member-owners who can decide how to distribute the profits at the AGM, which can include the following decisions:
- to allocate either part or all of the surplus to the general reserve for future investments; and,
- to distribute the profits to all the members in the form of patronage dividends based on the individual member's usage of the cooperative over the past fiscal year.
In addition, depending on the governing legislation, a cooperative may become a non-profit entity. These non-profit cooperatives do not provide members with a patronage dividend. All surpluses are directed eventually into the general reserve.