At its most basic level, a co-operative is a group of people who organize themselves for a common purpose, sharing equitably in the responsibilities and benefits of achieving that purpose, which might be anything from a shared residence to getting discounts on bulk purchases to running a worker-owned business. It is the last of these, a worker-owned cooperative, that we are considering. Though a worker cooperative differs from a typical for-profit business, it is not a nonprofit organization because (assuming we succeed) it will operate as a business, competing with for-profit businesses, and distribute earnings to its members.
Before getting into the details of what a cooperative is and how to go about forming one, I thought it would be helpful to give a brief rundown of the basic types of businesses organizations (because what we are contemplating is a business) and their advantages, disadvantages, etc.
Business Organizations
Soul Proprietorships and Partnerships
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The simplest business is a sole proprietorship–that’s basically what you have when you into business for yourself, by yourself, just you providing services or selling stuff and getting paid. You alone own and are responsible for everything–the business may have a separate name but is not a separate entity.
The next most basic form is a partnership, which is two or more individuals pooling their resources to run a business. In the absence of an operating agreement, all partners are assumed to have the same authority to make management decisions, borrow on behalf of the partnership, etc. Often the partners will agree to designate one partner to be in charge of management (the “general partner”) while the others take a more limited role (as “limited partners”).
These two forms share certain qualities–they come into existence automatically as a result of business being established, rather than being created as a separate entity under state corporation statutes. Sole proprietors and partnerships are responsible for all aspects of the business–they provide the capital, they are personally entitled to all profits and liable for all debts. If those debts exceed the value of the business, the proprietor’s/partners’ personal savings and property can be taken to satisfy the remaining debt.
Corporations
Corporations solve the problem of risk by creating a separate entity, an “artificial person” responsible for all aspects of the business. A corporation is created by filing with the state Department of State. This is usually the state where the initial director(s) and shareholder(s) live, but can be any state–regulations and taxes vary, so it may be worthwhile for tax purposes to incorporate in a state that has other other relationship to the business. The corporation owns property, hires employees, earns profits and pays tax on those profits. Ownership of the corporation is in the form of shares, which represent the shareholders’ investment. The corporation is governed by a Board of Directors, elected by a shareholders vote–the vote is based on the number of shares held. The Board then hires executives to take care of managing the business. Corporations thus create great flexibility by separating ownership from day to day management, and by insulating investor-owners from personal liability for debts of the corporation. On the other hand, the corporation is required to file and pay tax on its net income/profit. Any dividends paid out of that to investors become taxable income in the hands of those who receive them, which is often characterized as “double taxation” and a reason why alternative forms of business organizations (such as Limited Liability Companies) may be preferable, particularly for small start ups. Profits in LLC’s are “passed through” to the owners/shareholders as personal income and thus taxed only once.
The filing to create a corporation includes a statement of purpose, bylaws, names and addresses of the initial directors, and a registered agent (an official contact for the corporate “person”). For most for-profit corporations, the statement of purpose is a mere formality–the purpose of all for-profit corporations is to make money for their investors, and whether they do it by manufacturing or consulting, whether they do it in state or out of state or in another country, doesn’t really matter as long as the Board, representing the investors, agrees.
Worker Cooperatives
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A worker cooperative has three main characteristics that distinguish it from a regular for-profit enterprise: it is jointly owned by its workers, democratically governed by its workers, and operates for the benefit of its workers. Where ownership in a regular business is based on the amount of money or property invested, a worker cooperative distributes ownership equally among member-workers, who each contribute the same amount of money in exchange for a member share. Each member has one share, so each member has one vote. Earnings or profits made by a worker cooperative are distributed to members based on the amount/value of work performed during the year.
The amount required for membership can be any amount: in a capital intensive business like construction it can be quite high, in a less capital intensive business like tech consulting it would presumably be fairly modest. One thing that may cost a bit extra for us is the need for specialized legal advice on how to organize a cooperative with members in many nations, the special tax issues that may be involved, etc. There will likely also be a need to consult an accounting professional at the start. Filing fees to create an entity, such as an LLC, will be minimal. We may also need to consider liability insurance. Once we figure out what our capital needs are and how many members we have, we can figure what the member share buy-in amount should be.
While democratic decision making is a fundamental cooperative principle, that doesn’t mean every decision must be voted on. There are a variety of ways a cooperative can run, from the most participatory “collective consensus” model to a more representative model where the members elect a Board of Directors who are responsible for the day to day operation of the business. Even if there is a Board, there will still be policy issues voted on by the membership. It will be up to the members, as the cooperative is organized, how much authority to delegate as well as how to conduct meetings.
The worker cooperative is a logical form for a business whose main purpose is to benefit and empower those who do the work. It is particularly appropriate for an entity which is work-intensive rather than capital-intensive. It can provide the opportunity for blind/low vision technology professionals to take control of their work and reap the benefits of its success. However, establishing and maintaining a cooperative requires continual work and setting this one up will require a great deal of participation on the part of all prospective members.