Understanding Co-operatives: How Could They Work For My Business?

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Posted by Abinaja Yogarajah on 4 October 2019

Choosing the right business structure for your business or cause can be a difficult process to navigate. 

In the process of looking at your various options, you might have stumbled across the concept of “co-operatives”. Well, what are they?

In short, a co-operative may be an unconventional business structure, but it provides a perfect framework to bring people together in a democratic and equal way. 

What Is A Co-operative?

Co-operatives are people-centred enterprises that are fuelled by their members. The purpose of the co-operative is to help the members materialise their common economic, social and cultural needs and aspirations. 

These organisations operate on concepts of sharing responsibility, democracy and decision-making in order to benefit all members. 

A co-operative is its own separate legal entity, and the liability of the entity is separated from its members. 

In order to register a co-operative, you’ll need a minimum of five members and all these members have equal status and voting rights. 

What Can A Co-operative Do?

Co-operatives can be involved in various social and commercial activities, as long as it is defined within its rules. 

They generally fall into four categories. 

    1. Consumer Co-operatives – where the co-operative’s members buy and sell goods to other members at a competitive rate, for example, the Co-op Bookshop or The Wine Society     
    2. Marketing Co-operatives – where members brand, market and distribute their products and services, for example, Dairy Farmers Milk Co-op
    3. Service Co-operatives – where members provide each other services such as health, electricity or housing
    4. Community Co-operatives – where members share resources, information and skills that encourage ownership and participation 

The Two Types Of Co-operatives

Broadly speaking, co-operatives are either distributing or non-distributing. 

Here’s an explanation of how they’re different:

Distributing Co-operatives (‘Trading’ Co-operatives) 

Distributing co-operatives distribute parts of its surplus to members through bonus shares, dividends or rebates. 

If you’re forming a distributive co-operative, you need to have share capital and at least five active members. 

Each member has to buy the minimum amount of shares that is stated in the co-operative’s rules. 

Distributing co-operatives are suitable for ventures that are designed to make money for its members.

Non-distributing Co-operatives (‘Non-trading’ Co-operatives)   

Non-distributing co-operatives are more suitable for a community organisation and do not distribute any surplus to members. They tend to exist for a particular cause or to support a community, instead of pure profit-making purposes.

Non-distributing co-operatives use their surplus to support their activities and may have share capital, although this is optional. 

If a non-distributing co-operative is wound up, members get back the original value of their shares, at most. 

A Future For Co-operatives 

In recent economically uncertain times, particularly after the global financial crisis, there has been a renewed interest in co-operatives. 

Traditionally, co-operatives have been most common in the agricultural sector.

However, for some people who are dissatisfied with traditional companies and their focus on short-term profitability, co-operatives present an interesting prospect as a different kind of a business model. 

Particularly in cases where profit margins trump the interests of various stakeholders such as employees, the wider community and the environment there is an opportunity for co-operatives to thrive. 

Co-operatives and Sustainability 

Co-operatives as a structure are very suitable for environmental and social causes, as their fundamental principles are closely aligned with the social dimensions of sustainability. In many fields, such as creative industries and ‘green economies’, co-operatives have an advantage as they are more democratic and conducive to collaboration. 

Co-operative enterprises present viable and sustainable responses to our changing world, from renewable energy to social care co-operatives. 

Additionally, co-operatives often work with vulnerable groups such as migrant workers and refugees and focus on employment creation and work integration. The International Labour Organisation further found that co-operatives are prevalent in the care economy and, in the absence of affordable health care, are innovative providers of multiple services. They play a complementary role to governments in providing child care, disability, reproductive and mental health care. 

Co-operatives are truly a versatile business structure that can be used for a myriad of causes, not just for those with an explicit focus on sustainability. They’re increasingly being used in a wide range of businesses from banks to housing or grocery stores.

Need Help Setting Up A Co-operative? 

Co-operatives are a unique structure that can be used for many different types of businesses or causes. If you’re unsure of which business structure to set up, or you’d like to get started with setting up a co-operative – let’s have a chat! 

You can get in touch with us at 1800 730 617 or team@sprintlaw.com.au

Want to know how can co-operatives work for my business?

Let’s do it! Just get in touch and we can walk you through your options.

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Abinaja Yogarajah

Abinaja is a legal consultant at Sprintlaw. With an interest in tech and intellectual property, she’s worked in the technology industry while studying a law degree at Macquarie University.
Abinaja Yogarajah

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