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cooperative (co-op)

Contributor(s): Ivy Wigmore

A cooperative, often shortened to “co-op,” is a business that is owned and operated by and for the benefit of its members.

A cooperative is formed when several people identify an unmet need. For example, artisans in a downtown area might see the need for a conveniently located market; freelancers might identify the need for a co-working space. Potential members then conduct cost and feasibility studies and explore financing possibilities.

A cooperative may or may not incorporate but should draft a document stating membership requirements and responsibilities. The purchase of shares confers membership and members may vote on business issues on a vote-per-member basis. Cooperatives are usually run by elected directorial boards.

Profits and losses typically flow through to members in accordance with the number of shares they hold and are reported on the tax returns of the members. As is the case with partnerships, sole proprietorships and some other business structures, a cooperative is not considered a separate legal entity and, as such, is not required to pay taxes.

Cooperatives are common in the agricultural, energy, financial, arts, healthcare and retail sectors but they can be established to serve just about any consumer need provided by other types of businesses. Examples of well-known cooperatives include Ace Hardware, Associated Press (AP), Bob’s Red Mill, Land O’Lakes, Piggly Wiggly, U.S. Central Credit Union and Whole Foods.

Cooperatives can be seen as an early expression of the current trend toward collaborative consumption.

See also: entrepreneur, startup, C corporation, S corporation, limited liability company (LLC)

 

This was last updated in December 2015

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