Why Choose a Co-operative Business Model?
A co-operative (also known as co-op, cooperative or coop) is a type of corporation which is an autonomous association of people united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled business.
Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.
Newland Co-operative MISSION: We enable idea people by consistently providing the highest quality tools and services for superior quality co-operative development. We empower each co-operative workforce by ensuring income opportunity and organizational governance.
Choose Your Business Structure
The Small Business Administration provides guidance on “Starting a Business”.
The business structure you choose will have legal and tax implications. Learn about the different types of business structures and find the one best suited for your business.
A sole proprietorship is the most basic type of business to establish. You alone own the company and are responsible for its assets and liabilities.
Limited Liability Company
An LLC is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
People form cooperatives to meet a collective need or to provide a service that benefits all member-owners.
A corporation is more complex and generally suggested for larger, established companies with multiple employees.
There are several different types of partnerships, which depend on the nature of the arrangement and partner responsibility for the business.
An S corporation is similar to a C corporation but you are taxed only on the personal level.
Co-operative Core Principles
Cooperatives around the world generally operate according to the same core principles and values, adopted by the International Cooperative Alliance in 1995. The International Cooperative Alliance is a global membership association of co-ops and co-op support organizations.
The co-operative principles are guidelines by which co-operatives put their values into practice.
Voluntary and Open Membership
Co-operatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
Democratic Member Control
Co-operatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organized in a democratic manner.
Member Economic Participation
Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.
Autonomy and Independence
Co-operatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.
Education, Training and Information
Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public – particularly young people and opinion leaders – about the nature and benefits of co-operation.
Co-operation among Co-operatives
Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.
Concern for Community
Co-operatives work for the sustainable development of their communities through policies approved by their members.
Co-operative Best Practice
There is a growing body of literature on best practices of businesses based upon the co-operative business model. These practices cover several areas. Within the United States, by the constitutional separation of powers doctrine, cooperative law is the purview of the states. Minnesota law. The laws provide standardized solutions usable by a starting co-operative. Within these laws co-operatives are granted broad powers.
Management and direction of a cooperative is both an art and a science. Ultimate power is vested in the one member equals one vote democracy. The day to day management decisions are handled by the elected board of directors. Strategic direction setting may be the responsibility of board, which is subject to refinement by the membership.
The Newland™ business model provides the LivingVote™ process, as a primary direction setting technique, used by the members to provide the framework for day to day operations.
The stakes have never been higher for cooperatives. They operate in a business environment with less margin for error. As cooperatives grow larger and face increasing internal and market complexity, the critical factors for their success must be continually re-examined.
The most successful cooperatives develop a culture for continuous learning. Managers and board members must understand the on-going need for knowledge and information. It is human nature to operate in our comfort zone. However, new technologies, or changes in the political, regulatory or farming environment may have major implications for future operations. The best cooperatives identify information gaps and develop strategies to address them. The annual strategic planning session is an ideal time to consider what you don’t know.
A final factor in cooperative governance is balancing returns at the firm and member level. Managers and boards focus on the bottom line and balance sheet strength. Members often focus on prices, service and equity retirement. Cooperatives must not only maintain this balancing act but also communicate the multiple dimensions of successful performance to their members.
Minnesota Cooperative Statutes Chapters
Minnesota has two sets of statures pertaining to co-operatives. Some definitions are necessary.
Subd. 5.Association. “Association” means an organization conducting business on a cooperative plan under the laws of this state or another state that is chartered to conduct business under other laws of this state or another state.
Subd. 15.Member. “Member” means a person or entity reflected on the books of the cooperative as the owner of governance rights of a membership interest of the cooperative and includes patron and nonpatron members.
Subd. 19.Nonpatron membership interest. “Nonpatron membership interest” means a membership interest that does not require the holder to conduct patronage business for or with the cooperative to receive financial rights or distributions.
Subd. 20.Patron. “Patron” means a person or entity who conducts patronage business with the cooperative.
Subd. 21.Patronage. “Patronage” means business, transactions, or services done for or with the cooperative as defined by the cooperative.
Subd. 22.Patron member. “Patron member” means a member holding a patron membership interest.
Subd. 23.Patron membership interest. “Patron membership interest” means the membership interest requiring the holder to conduct patronage business for or with the cooperative, as specified by the cooperative to receive financial rights or distributions.
Chapter 308A Cooperatives statutes pertain to a cooperative formed and incorporated on a cooperative plan for the purpose of conducting an agricultural, dairy, marketing, transportation, warehousing, commission, contracting, building, mining, telephone, manufacturing, mechanical, mercantile, electrical, heat, light, or power business, or for any combination of these purposes or for any other lawful purpose.
Chapter 308B Cooperative Associations statutes pertain to a cooperative formed and organized on a cooperative plan for any lawful purpose, including: (1) to market, process, or otherwise change the form or marketability of products, including crops, livestock, and other agricultural products, the manufacturing and further processing of those products, other purposes that are necessary or convenient to facilitate the production or marketing of products by patron members and others, and other purposes that are related to the business of the cooperative; (2) to provide products, supplies, and services to its members; and (3) for any other purposes that cooperatives are authorized to perform by law.
Minnesota’s Newland Co-operative chose Chapter 308B organization for several reasons, including 308B.601 MEMBERSHIP INTERESTS and in particular, Subd. 3.Patron membership interests. The patron membership interests collectively shall have not less than 60 percent of the cooperative’s financial rights to profit allocations and distributions. If authorized in the original articles as filed, or articles or bylaws adopted by an affirmative vote of the patron members, or the articles or bylaws are amended by the affirmative vote of patron members, then the cooperative’s financial rights to profit allocations and distributions to patron members collectively may be not less than 15 percent.
Subd. 5.Nonpatron membership interests. If authorized by the articles, the cooperative may solicit and issue nonpatron membership interests … distributions shall be made on the basis of value of the capital contributions of the patron membership interests collectively and the nonpatron membership interests to the extent the contributions have been accepted by the cooperative.
Patron and Nonpatron Membership Interests in Newland Co-operative
Minnesota’s Newland Cooperative filed the minimalist business organization charter required by law. Everything else is subjected to the LivingVote™ decisions in the bylaws. With this fact in mind, the bylaws speak to all matters of patrons and nonpatrons.
“Patron membership interests” are established for time investors who provide services. Necessary expenses, as established in the bylaws, which are approved by the board, may be reimbursed.
“Nonpatron membership interest” is reserved for capital investors.
What Is a Co-operative?
Co-operatives put people at the center of their business and not capital. Co-operatives can be defined in terms of three basic interests: ownership, control, and beneficiary. In a co-operative all three interests are vested directly in the hands of the user. Some co-operatives are designed to produce a profit. Profits are distributed back to the members in the form of patronage. Since the owners of a co-op are also the customers, lowered prices and extra services are acceptable, instead of profits.
The International Cooperative Alliance defines a cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”
Typical Kinds of Cooperatives
There are several types of cooperatives based upon their business model. Within each business mode, products and services vary.
With buyer’s co-ops, people who shop at a store are members, they pay a fee to be a member which essentially buys them a ‘share’ of the co-op. The benefits of this type of co-op for the members are usually either (a) lower prices for products (b) specific control of the types of products offered. For example, you might start an internet co-op to bring broadband to a rural area where it otherwise wouldn’t be affordable enough for a single person to pay the costs. Buyer’s co-ops can take other forms; for example, ACE Hardware is a co-op, but it’s an owner’s buyer’s co-op; all owners of ACE Hardware stores are owners of the co-op, and use it to buy goods collectively.
With worker’s co-ops, the workers are the beneficiaries of the co-op structure. Sometimes the workers will have to invest money if they join an established co-op, but more often than not, the workers are the founders of the co-op and are invested in ways that aren’t just monetary. The main benefit of this structure is that it enables the workers to set business policy. These co-ops are often collectives at a small level, but may adopt more hierarchical structures as they get bigger.
With producer co-ops like Minnesota’s Newland Co-operative, the patron and non-patron member benefits form a hybrid cooperative with elements of time investment and capital investment membership interests. The basic principle is simple. Capital investment members are repaid their principal and then a share in downstream income, providing optional time limited return on capital investment. Once fully repaid, a capital investor may be convertible to a time investor.
Major Movie Co-operative
When a Producer Co-operative takes on a task, like a major movie, they will assign sub-projects to time investors within subsidiary co-operatives, nested to any desired degrees of sensibility. Each sub-cooperative takes its place among all the pipelines through which product improvements flow. Such a project would involve hundreds of union-based co-operatives filled with thousands of workers trained to the individual time investment areas.
Union Associated Co-operative
Union associated co-operative means that all union dues are paid and all votes are taken.
|Multiplier||Hourly Rate $US||Purpose|
|1/4 x||$6 per hour||$6 allowance for one documented hour of time investment recorded|
|1/2 x||$12 per hour for Journeyman’s grade assessment||$12 study reward rate for documented time investment records grades in academic school of union sponsored apprentice trade school|
|2/3x||$16 per hour for great grades in college or trade school||$18 for adults who are at least 18 years old and working for completion of a bachelors academic degree|
|2/3x||$16 per hour supervised time investment||$18 for adults in supervised time investment schooling to journeyman level in one trade.|
|1x||$24||22-29 years old|
|2x||$48||40+ year old master level by education experience, or age|
Time Investment Royalty Distribution
In the final toll, each workers time investment is paid for as a share of the net profit. In a billion dollar move that could divide the income fairly at the base hourly rate for journeyman class worker or college graduate is the (1x) rate of $24 per in for U.S. workers, $3 per hour in Malaysia. And so it goes for every local bank-note currency, national currency, digital currency, hard currency, and so forth. All of it only becomes payable and taxable at profit distribution time. It is scaled to the local economy. This stabilizes the Newland™ economy.
Cultivate.Coop is a library of information about cooperatives. Everything is created by and for people who work in co-ops. You can edit and upload content to Cultivate.coop just like Wikipedia. Cultivate.coop is also home to the Cooperative Education Network, a group of practitioners developing a centralized collection of materials on co-op education. The article Starting a Co-operative is comprehensive and well worth studying.
The U.S. Small Business Administration has delivered millions of loans, loan guarantees, contracts, counseling sessions and other forms of assistance to small businesses. See Choose Your Business Structure for information about co-operatives.
The article Expert advice: How to start up a co-operative contains tips from experts, gathered during a live Q&A. It clears up terminology and provides principles useful in deciding start-up issues.
The co-operative photo: This is Money website.