Three Questions with Adam Prescott and Dave Schneider
Bernstein Shur’s Adam Prescott and Dave Schneider answer questions about cooperative businesses and when a co-op structure might be a good fit for your new or current business.
What are cooperative businesses?
Cooperatives, or co-ops, are member-owned and member-controlled businesses. Co-ops are a legal business structure that may be for-profit or non-profit, and the co-op is owned, governed, and managed by and for the benefit of its members. Co-op members can be customers, employees, producers, community members, or some combination of different groups, and the members all share in the ownership and running of the business. Because members are owners and managers, the businesses operate for the benefit of those members, including patronage dividends to members. Co-ops come in all different shapes, sizes, and industries, from nationally recognized brands, to small businesses and start-ups with only a handful of employees closer to home.
What are the advantages of a co-op business structure?
Each business must analyze the best legal structure to meet its unique needs, but there are several advantages of organizing as a co-op. Because the co-op is member-owned, that ownership and influence in governance impacts and motivates employees to improve their performance because they are owners of the business. Joining or leaving as a co-op member can be simple, and a business co-op gives members the right to vote or raise issues in the management of the business where they work, promoting equality and democratic principles. The co-op structure also allows direct financing by members, which can help establish a co-op when traditional funding may not be immediately available. The flexibility of the co-op model also may allow the business to thrive in markets where traditional businesses may not exist or may not be profitable for other investors, particularly in rural areas or in bringing new products to market, which creates new employment opportunities and benefits to the community.
What unique challenges do co-ops face?
Although the co-op structure presents many advantages, it also presents some challenges. For example, rather than a centralized decisionmaker, co-ops may spread management power among many members, which can slow down the decision-making process, especially in co-ops with hundreds or thousands of members whose opinions must be solicited before major decisions are made. The co-op may also face barriers to accessing traditional financing or private capital necessary to maintain or grow the business, although specialty co-op financing options do exist. All of that said, when organized properly with the right group of people, a co-op structure can provide a great vehicle for either a startup small business or a succession planning option for those converting an existing business to a co-op.
To read more about co-ops and how Adam helps his co-op clients maintain their financial health and achieve their long-term goals, check out this article.