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A cooperative is a legal organization that is formed by a group of individuals and/or businesses that desire to work together for their “cooperative” benefit. A cooperative has two unique characteristics. It allows a group of separate individuals or individual businesses to join together for a common purpose, such as the bulk purchase of materials, for sharing office space or to sell common products. While a cooperative has to cover its costs to stay in business, it can focus its resources on meeting the needs of its user-owners, called members. Business decisions are made on the basis of what is in the overall best interests of the members. Each member maintains his/ her status as an individual or individual business and the cooperative becomes a means to realize common business and personal goals.

NOTE: A cooperative is not a form of legal structure used to operate a single independent business. In a cooperative, each member generally has only one vote regardless of the amount of equity owned. This one-member, one-vote approach makes cooperatives very democratic, which can be viewed as an advantage or a disadvantage. Wealthy members can’t buy control and all members have equal say in how the business is conducted. However, it does not take into account the amount of financial and/or time commitments made to the organization. In a non-cooperative business, people usually have voting power that is based solely on their equity investment. A cooperative may organize as an unincorporated association. This is the least formal method for organizing a cooperative. The only government requirement is the registration of a trade name with the Secretary of State online www.sos.state. However, you must also adopt and have available for members a constitution, articles of association or a written declaration of organization.

Most groups organize as a corporation. Organizing as a corporation has three advantages. First, the personal liability of each member for losses suffered by the cooperative is limited to the member’s equity in the cooperative. Second, the cooperative exists independently of the original organizers. Transfer of ownership and control is simple. New members purchase a membership or a share of voting stock. When a person is no longer eligible to be a member, the cooperative repurchases that person’s membership interest. Finally, organizing as a corporation conveys the image of a solid, long-lasting venture to members and outsiders.

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