What is cooperative Business in US: How a Cooperative Business Works in the 21st Century.
What comes to your mind when you hear the word “cooperative”? sure, you are possibly thinking about some kind of local businesses in the street. How about we share with you that it’s beyond a local business entirely?
There are various types of cooperative businesses out there in the field. On this page, we shall be looking at all there is to know about cooperative business featuring types, pros & cons, and lastly, how to start a cooperative business in the U.S.
What is a Cooperative Business?
Cooperative business is any form of business that is owned, managed and operated for the interest of its members only. Cooperative business is usually not owned by one person. It is usually owned by a group and members can be individual, schools, family, communities, businesses or manufacturers.
Profits gained from a cooperative business is usually shared across of its members which is why we shared above that the business is operated for the interest of its members. A cooperative business can as well have various motives which can result it to being a profit or a non-profit oriented.
The concept for cooperative businesses can be traced back from 19th century. The business model in the 21st century now goes beyond what it was before now as it focuses on even greater factors as compared to before.
Types of Cooperative Businesses out there
There are various types of cooperative businesses out there. Below you will find a list of some of the common ones.
- Mutual Insurance Companies: Co-ops with the term “mutual” attached to their names are usually owned/operated by policy holders other than stockholders.
- Credit Union: These are types of co-ops that are not-for-profit entities with however, with the aim of serving their members.
- Rural Electric Power Cooperation: These are private owned or not-for-profit businesses incorporated with the aim of serving low-cost electricity service to customers.
- Consumer Goods Co-ops
- Producer Co-ops: These types of cooperatives are owned and operated for it members-growers.
- Retail Co-ops: This is a type of cooperative which is owned solely by the local Ace retail entrepreneurs.
- Cooperative Buying Clubs: This is a kind of co-ops by which a group come together, contribute to acquire/purchase an item usually consumable and share the item among themselves after purchase.
- Community Owned Businesses: This is a type of co-ops that has the aim of helping members of the community startup a business.
- Housing Cooperatives: these are types of co-ops formed when people join to own or control housing and/or related community facilities. These co-ops are different from condo associations, in which each unit is privately owned and there is a common area owned jointly.
- Youth Cooperatives: These are businesses incorporated and run by young people to give them experience with one type of real-life work model. They can be set up in a school or community center or another organization that supports youth.
Having looked at some common types of cooperative businesses one can find out there, let’s look at some of the pros/benefits of co-ops business.
Advantages of Starting a Cooperative Business
Every type/form of business from any part for the world has pros and cons. Let’s look at some of the merits of Cooperative business.
- Exemption of paying taxes for co-ops positioned as a non-profit entity
- Benefits lower cost as they work, buy and acquire items in bulk thereby paying less for products.
- The benefits common protection of losses
- Benefits of equal hearing as it’s generally owned by its members
- Most co-ops are value driven, thereby making it not just a profit oriented business.
Disadvantages of Starting a Cooperative Business
Some of the cons of co-ops can be found below;
- Less opportunity for outside investors because they can’t gain control
- Lack of interest by members over time
How to Start a Cooperative Business
Starting any kind of business from all parts of the planet requires its managers to execute some procedure. Just like any other businesses out there, starting a co-op requires owners to follow some procedures.
One can easily start a co-op from any stage or level. For instance, you can decide to for a food buying co-op. What you need to do is form allegiance with other families, purchase food items and share among other families. Below, you will find procedures for starting a co-op from any part of the world.
Choose Co-op Type
The first step in starting cooperative business is deciding on type of co-op and of cause the purpose. We mentioned 10 types of co-ops above on this page.
For start, you can review some of the types mentioned above and look which best suit your requirement. Next, you will need to decide they model of corporation (either corporation, partnership or LLC).
Register your Co-op
The second stage of starting a co-op after deciding the type is registering the co-op with the right authorities.
Some U.S. states may require that you have the term “cooperative” incorporated in your business name while others don’t. First you need to confirm from your start authorities for requirements and regulations for registering a cooperative business.
Form a Structure
Every business requires a build structure in order to attain it major purpose. This structure has to do with electing key representatives and hierarchy individuals such as directors etc.
Review your Tax Eligibilities
As mentioned earlier, one pros of co-ops it that it benefits tax exemption.
However, this is not applicable to all types of cooperative businesses. For a co-op to benefit tax exemption, such business must not be profit oriented. Co-ops with the aim of growth of their members only as exempted from paying taxes.