The Type of Business You Would Have with Friends: Cooperatives Explained
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The Type of Business You Would Have with Friends: Cooperatives Explained

A cooperative business, which can vary in type and size, is a private organization owned and operated by those who purchase its products and services. If you’re selling products, a resale license in CA is required. The many types of cooperatives represent industries including agriculture, arts and crafts, credit unions, child care, cleaning services, food, hardware, housing, insurance, and utilities.

By definition, cooperative businesses aren’t concerned with profiting for investors. Members run the business for their own benefit, which may be a small community organization, a Fortune 500 company, or anything in between. The benefits of joining such a business include having full control, pooling risk, and enjoying group purchasing.

Another motivation to start a cooperative or co-op business is to be competitive. The concept of a cooperative organization enables its owners to have more bargaining power, expand their market opportunity, improve products and services, and reduce costs.

What Makes a Cooperative Different?

In a cooperative, each member’s contribution is determined by what they purchase. For example, you could buy an iPad or iPhone without investing in Apple, Inc.; or purchase stock without buying Apple products. A co-op differs because only those who use/have used the company’s products or services own it or can access these assets. This is the foundation of what a cooperative is.

In a cooperative, each member has one vote. Every member of the organization shares responsibility in running it. Aside from each member having an equal status, a cooperative business reduces debt risk among members, while members and shareholders evenly distribute the work to be done. There are tax benefits as well. Cooperatives are unique in that they’re exempt from income tax, up to a limit.

Cooperative Business Examples

Examples of cooperatives include:

  • Agricultural cooperatives, which include marketing firms that assemble, pack, process, and sell goods; and supply firms that purchase at lower costs goods such as seed, fuel, or fertilizers for members. Bargaining cooperatives negotiate with processors to offer members more favorable prices.
  • Business cooperatives, such as taxi-cab owners grouping together to provide dispatching services. Hardware stores, retail pharmacies, and real-estate information sharing cooperatives may also serve their members.
  • Housing cooperatives in which each member/resident owns a share of the corporation. The entity is financed by a blanket mortgage, so payments and operating expenses are distributed/lowered to support low- and moderate-income households.
  • Credit unions organized by consumers to help members obtain lower-cost loans and encourage savings.
  • Student cooperatives may enable students to gain a range of experience while operating businesses serving members’ needs for housing, food, books, etc.

Starting a Cooperation

First, the cooperative’s mission and core values must be established by a steering committee. A feasibility study then identifies opportunities and obstacles. With the help of legal counsel, articles of incorporation and bylaws are drafted. You then need a complete business plan and to secure financing. An office and staff are typically needed to launch your cooperative business.

Obtain Your Seller’s Permit Fast

FastFilings can help you get your resale license in CA in three simple steps, much sooner than if you apply directly through the state. Learn more by contacting us online or by going to FastFilings.com

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