How to Set Up a Co-Operative Business
Co-operative businesses are a growing phenomenon in a number of business sectors throughout Ontario—and for good reason. It ensures total monetary equity and equal business management control amongst all members regardless of responsibilities and ranking and allows them to apply democratic due process to all business-related matters. Since all members are also equal shareholders in the business, it’s important for them to work together as a community to facilitate the success of the business. With the help of a distinguished business lawyer, incorporated businesses can draw up legally binding contracts that benefit the collective group equally and ensure the longevity of the business.
What Is Co-Operative Ownership and Control?
Co-operatives, which are also referred to as co-ops, are owned by their self-appointed group members who also manage the daily operations of the organization. These members are also shareholders in the company who use the products and services offered by the business. Therefore, the policies, products, and services are designed specifically to meet the core needs of the co-op members first and external investors or customers second.
Co-operatives are democratic, which means all members possess equal power unless otherwise specified in their contractual agreements. Each member, regardless of ranking as a director, board member, or manager, receive equal pay for equal work after all business expenses are covered. Their compensation comes out of a surplus of funds after operational costs are paid.
According to the International Co-Operative Alliance, no one party is entitled to a larger salary than the others; everyone must be paid equally.
As per business law in Ontario, co-operatives must include a minimum of five members who are all over the age of 18, but worker co-operatives are only obligated by law to consist of three members. According to provincial laws, only the head office and main operations must be located in Ontario. Other than that, co-operatives have the option of outsourcing business operations to other parts of the country or internationally if it makes sense for the good of the business and as long as all members are in agreement.
Steps for Setting Up a Co-Operative Business
Starting and managing a business comes with a unique set of challenges and forming a co-operative is one of many. There are a number of essential steps involved in setting up a co-operative business. Here are the six main steps:
1. Establish a Committee
You’ve heard the saying “it takes a village to raise a child”. The same concept can be applied to a business. Even if your business venture starts off as a sole proprietorship, eventually you’re going to need access to external resources and a variety of experts to handle different functions within your company. Once you’ve developed a set of core values for your business, bringing together a group of likeminded individuals who have the expertise and experience you’re looking for to represent various aspects of your business should be a cakewalk. These individual members will also set the precedent for the exact company culture you’re aiming to establish.
2. Study Your Business Structure
The first five years of any new organization are critical. During this time, your business will face a lot of major challenges—mostly financial—as you work to gain footing in your chosen industry. By the fifth year, your business won’t necessarily be profitable but it should be breaking even. This is the time to start examining the functions of your business and find out what works and what doesn’t. Examine every miniscule aspect of your business model and make as many tweaks as necessary.
3. Draft the Necessary Legal Articles
This is where you’re going to need the legal expertise of a business lawyer. Provincial corporate law mandates that all co-operative businesses must be incorporated according to local statutes and bylaws. The legal team at Sutherland Law can help you draw up appropriate incorporation articles that meet the needs of your business as outlined by Ontario’s provincial government. Or we can review existing legal articles and help you make necessary changes based on our legal expertise. The initial drafts of your legal articles don’t necessarily have to be comprehensive and you can always request to make changes later on as your business continues to grow and evolve.
4. Prepare an Airtight Business Plan
By now, you should already have a working business plan. As your business continues to grow and evolve, you’re inevitably going to have to tweak or revise your business plan from time to time to accommodate its most current needs. In addition to outlining your professional objectives, core values, and documenting your up-to-date growth margins, your business plan should also include in-depth market analyses, your overall marketing and sales plan, a description of your business, product and service research, product development schema, the structure and functionality of your organization, as well as up-to-date financial information. A detailed business plan will help get your organization on the right track and help you stay organized.
5. Secure the Necessary Financing to Get Your Business Started
Once you’ve proven that your business is profitable or that with the right backing, it has the potential to be, you should be able to find investors who are eager to financially support your organization. Oftentimes with co-operatives, members tend to invest their own money into the business in order to help it progress and grow. Some co-operatives even successfully apply for start-up grants or business loans to help relieve their operational costs. The amount of capital co-operatives need to cover start-up and operational costs should also be included in the official business plan.
6. Launch Your Co-Operative Business
After all that hard work and preparation, it’s time to launch your co-operative business and watch it take off. Do whatever you need to do to make your business successful whether that means attending industry-related networking events, serving as keynote guests and speakers at those events, renting a designated space (warehouse, office, vendor booth, etc.) for day-to-day operations, and so forth. The type of model you implement will vary based on the sector your business is in.
Why You Need a Business Lawyer to Establish a Co-Operative Business
Trust the skilled business lawyers at Sutherland Law to draft or review your co-operative contract for you before applying for federal incorporation. We’ll peruse all of your organization’s legal documents with a fine-toothed comb and take the time to fully understand your business objectives to ensure that they’re aptly reflected. Contact us today to learn more.
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