Catalyst hub
What is a cooperative?
A cooperative enthusiast would probably say that ANY organization that is committed to and practices cooperative principles is a cooperative. A corporate lawyer would say that a cooperative must be formed under a cooperative statute. A tax lawyer would say it doesn’t matter what statute it’s formed under as long as it “operates cooperatively” as that term is defined in tax law.
The basic (non-legal) cooperative principles according to the International Cooperative Alliance are: 1. Voluntary and open membership 2. Democratic member control 3. Member economic participation 4. Autonomy and independence 5. Education, training, and information 6. Co-operation among cooperatives 7. Concern for community See Appendix: ‘Cooperative Principles’ for details of each
What is a solidarity cooperative and does this compare to others?
We are using the solidarity cooperative model, where ownership is shared between customers, tenants and workers under a shared vision. Here’s how it compares to other cooperative models. Solidarity cooperative - Ownership is shared between customers, tenants and workers, often with distinct membership categories. Producer cooperative - Allows its members to cooperatively market and sell products, most commonly found in the agriculture industry (30% of total agricultural production is marketed by co-ops.) Purchasing cooperative - Groups of businesses that wish to jointly purchase services or supplies, allowing them to compete with national chains. Consumer cooperative - Organized by consumers who want to achieve better prices or quality in the goods or services they purchase. Worker cooperative - A company owned by its employees, and its purpose is to provide employment for the members. Housing cooperative - One or more residential buildings owned by a corporation that is membership-based, with each member granted the right to occupy one housing unit.
Why a cooperative, from a societal point of view?
| The Benefits of Cooperative Ownership | |
|---|---|
| Extractive (Institutional) Ownership | Generative (Cooperative) Ownership |
| Financial Purpose: Maximizing profits in the short term |
Living Purpose: Creating the conditions for life over long term |
| Absentee Membership: Ownership disconnected from life of enterprise |
Rooted Membership: Ownership in human hands |
| Governance by Markets: Control by capital markets on autopilot |
Governance by Living Purpose: Creating the conditions for life over long term |
| Institutional Finance: Capital as master |
Community Finance: Capital as friend |
| Commodity Networks: Trading focused solely on price and profits |
Ethical Networks: Collective support for ecologial and social norms |
Adapted from Owning Our Future: The Emerging Ownership Revolution, by Marjorie Kelly
Why a cooperative, from a personal ownership point of view
Where can one find examples of the solidarity cooperative model?
Our favorite example is Commongrounds in Traverse City, cofounded by cohort Kate Redman, a $15 million, 50,000 s.f. new mixed-use 4-story building with 500 community members and tenant owners. Quebec, Canada, has over 300 solidarity cooperatives. One successful U.S. solidarity co-op is Weaver Street Market in Carrboro, North Carolina, where both consumers and workers are members.
What are the pros and cons of the solidarity cooperative model?
The primary pros of the solidarity cooperative model is that it is holistic and inclusive of those that both provide and use the services that the cooperative offers, increasing the likelihood of sustained success and reducing the risk of financial default. The primary con of the solidarity model is that it requires multiple classes of membership that in turn requires more sophisticated governance and counseling. Kate Redman of Commongrounds can provide a significant amount of further insight into this topic since she is currently developing one at a large scale (50,000 s.f. new building).
What are the different types of ownership in a solidarity cooperative model?
The two main types are ‘community owners’ and ‘tenant owners’. See this explained via diagram at Appendix > II. Community Center Cooperative + Church as Timeshare. Community Owners are essentially those using the services of the building, and the Tenant Owners are those that are providing those services.
What are the personal risks in financing cooperatives?
The minimum amount required to become a cooperative member (ie $50-$100) becomes a permanent non-transferable contribution to the cooperative. If you contribute more, say, at least $500, you would get a predetermined % return and it would be treated as a loan, not as equity. If the cooperative defaults on your loan, you would receive equity. If one is a tenant owner member that owns a section of the property (ie like a condo) or a time-share, they are only responsible for the mortgage payments associated with their share. Just as with any financial arrangement, if the party defaults on their payments, the cooperative would take ownership. However, because this is a project that is community owned, there would be an opportunity to negotiate a buy out versus all-or-nothing repossession when dealing with institutions or money-first financial partners.
What is the return on the added time it takes in developing a cooperative?
If you’re trying to set up a cooperative alone, it would probably not be worth the time it takes to learn a new ownership model, unless you’re a superhuman lawyer like Kate Redman. With a team of lawyers, paralegals and governance practitioners, much of this is designed to be a turn-key operation, along with a supportive community of cohorts going through the same process. Your time spent on developing the cooperative should be added to the soft cost budget (legal, financial, management time/expense) just the same as any other hard costs (property, renovations, permits).
What is the return on the added financial investment it takes in developing a cooperative?
As far as paying for the expenses of setting up and managing a cooperative, all those costs are shared by the cooperative community. As far as what is the financial return on those expenses, here are a few: Less time spent not only on securing financial partners, but maintaining a healthy relationship with them Reduced risk of relying on financial partners simply not changing their minds in how aligned they are in your vision going forward. Less time spent in ensuring enough revenue is flowing, via customers and patronage to the building. This is now a shared responsibility with hundreds of members versus just yourself and your financial partners, or any staff you would have to pay. Reduced risk of not relying solely on yourself, financial partners and staff in not defaulting on mortgage payments, versus a membership of hundreds with a personal stake. . The emotional return on being part of a community of shared interests that are collectively dedicated to ensuring the vision of the cooperative is thriving
How can a nonprofit/community-serving entity maintain equity in a cooperative
The easiest way to explain this is via the existing model of the Commongrounds project. Nonprofit and community-serving entities are encouraged to own condo-ized units in the building that they own outright within the cooperative-owned building. This can also be achieved through time share units. See Appendix > II. Type A: Community Center Cooperative + Church as Timeshare.
What are the options for those who don’t have the money to participate?
This is the point behind having a low barrier to entry in terms of the minimum share price, which is $50 in the Commongrounds project. Even if a person insists they can’t even afford the $50, there is very likely a way to find someone willing to sponsor their ownership for $50.
Does sweat equity count in cooperatives?
This is referred to as patronage, the amount someone contributes to the health and success of the cooperative. By law, cooperatives require profit sharing to be distributed based on patronage, not financial investment. It is up to the board of directors on whether they want to count sweat equity as viable currency in purchasing the minimum share.
How are profits distributed?
By law, cooperatives require profit sharing to be distributed based on patronage, not financial investment. It is up to the board of directors on whether they want to count sweat equity as viable currency in purchasing the minimum share.
How is the cooperative financed?
The cooperative is financed by its Tenant Owners and Community Owners. See Appendix > II. Community Center Cooperative + Church as Timeshare for how this is arranged. Tenant Owners are equivalent to condo or timeshare owners, responsible for their ownership unit. The rest of the building is financed by Community Owners, and this is usually managed via a crowdfunding platform like SmallChange.io or crowdlending platform like Semble.com. Community Owners have the opportunity to invest starting at $50-$100, with at least a $500 contribution to receive a predetermined return, which makes it a much more meaningful and fiscally responsible alternative to the stock market.
This should be determined based on your patronage, the people who use your services. With Commongrounds their patronage includes every single person in Traverse City, Michigan, so it’s important they price their shares at a minimum that everyone can afford - $50. If your patronage typically pays a minimum of $500 for your services, that could be the basis for a minimum share price.
Cooperative Principles
The basic (non-legal) cooperative principles according to the International Cooperative Alliance are:
- Voluntary and open membership: Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political, or religious discrimination.
- Democratic member control: Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives, members have equal voting rights (one member, one vote), and cooperatives at other levels are also organized in a democratic manner.
- Member economic participation: Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
- Autonomy and independence: Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.
- Education, training, and information: Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives. They inform the general public—particularly young people and opinion leaders—about the nature and benefits of co-operation.
- Co-operation among cooperatives: Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures.
- Concern for community: Cooperatives work for the sustainable development of their communities through policies approved by their members.