Incorporate Your Co-op
Once you've got a clear idea of who and what you are and how your co-op will work, you will want to become legally recognized as a
co-op so you can start your business. You'll need to develop
by-laws and articles of incorporation.
CO-OPERATIVES AS LEGAL ENTITIES
Canadian co-operatives are incorporated either under federal or provincial legislation. There is a need for co-operatives to become legal entities to ensure proper business practices are followed, to provide permanence to the business, and to ensure that the
co-operative principles - democratic control, one member/one vote, limited interest on investment capital and equitable distribution of funds - are maintained.
You are not REQUIRED to incorporate as a co-operative to run your business co-operatively. You can work collectively and co-operatively and not be incorporated, but you must not use the words 'co-op or co-operative' in your legal name [with or without the hyphen].
The advantages of incorporation include protection from personal liability (losses and other liabilities would be held by the co-op, not by you as individuals), consumer protection, credibility, legal recognition, access to loan programs, and on-going affiliation with co-operative organizations and federations.
A co-op has a charter (Articles of Incorporation), by-laws, and policies, like other types of corporations. However, unlike other forms of corporations, members are involved in formulating policies and operating the enterprise.
To operate as a co-operative in Ontario, your business must be organized and operated on a co-operative basis. The definition of 'co-operative basis' is based on principles laid out in the Statement of Co-operative Identity adopted by the International Cooperative Alliance in 1995.
NON-PROFIT AND FOR PROFIT
In Ontario, all co-ops must be registered under the Co-operative Corporations Act. Some co-operatives issue securities to their members, and to restricted categories of non-members. Co-ops can be incorporated with share capital, without share capital, as a worker co-op (with or without share capital) or as a non profit (must be without share capital).
A co-op may be operated on a profit or not-for-profit basis, as stated in its charter. Being not-for-profit, does not mean that the business is operated 'at cost', but that profit (often called 'surplus') is not the primary objective.
Co-operative legislation recognizes that the motive for operation in a co-operative is service, not profit. Thus co-operatives differ from other incorporated bodies in a number of respects including:
(a) Generally those who use the services of a co-operative are also members. Members of the co-operative own shares, which are usually divided into voting and not-voting 'classes' of shares. In a private business one shareholder can own a number of voting shares thereby entitling the shareholder to a substantial number of votes to override the wishes of smaller shareholders. This can never happen in a co-operative because each member is limited to one voting share. Each member has one vote despite the number of shares he or she might hold. This is why it is said that
co-operatives are democratically controlled.
(b) Proxy voting, often practised in private enterprise, means that one shareholder may vote on behalf of other shareholders. This is another way in which only a few shareholders can gain control of a company. Proxy voting is not allowed in a co-operative and, therefore, control is exercised by the majority of members present.
(c) Surplus earnings in a co-operative are distributed to the members. Members of a co operative decide how this money will be distributed. Some types of co-operatives return earnings to the members based on how much they have spent at the co-operative. Others, such as some workers' co-operatives, divide surplus earnings equally among the members. Still other co-operatives use surplus earnings to reduce the cost of services to members. In private businesses, surplus earnings are paid to shareholders, who are not usually the main users of the services, and are distributed according to the amount of shares held.
(d) Unlike private business, shares in a co-operative do not have speculative value; that is, they cannot be bought, sold or traded for profit. Members own shares in a co-operative, as a condition of membership, to provide funds to allow the co-operative to operate. These funds are referred to as share capital.
HOW TO INCORPORATE IN ONTARIO
Co-ops work with a variety of different government Ministries, departments and agencies in the province. However, the Ministry of Finance handles incorporation through FSCO - the Financial Services Commission of Ontario.
Under Ontario's Co-operative Corporations Act (CCA), all businesses wishing to incorporate must file the appropriate forms, statements and fees with the FSCO. To learn more, click here.
To view the Co-operative Corporations Act and its regulations and related legislation on the web click here.
GLOSSARY OF TERMS
Articles of Incorporation (also known as a Charter) lay out the general framework of the cooperative. Articles include the cooperative's name, share structure, directors and incorporators. Amendments to the articles require a special resolution of the members and, if investment shares are issued, a separate special resolution of shareholders. A special resolution is one generally requiring no less than two-thirds of the votes cast.
By-laws are internal to a co- operative. They generally pertain to the rules of operation. Changes to the bylaws must be approved by the membership.
Policies are created by the Board of Directors and management team to provide the guidelines and directions of the organizations on issues such as human resources, finances and other issues. They are generally approved by the Board of Directors and reviewed on a regular basis. Policies can be modified at the Board level.
Procedures are the ways in which the co-op's policies are carried out.