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People come together for a wide variety of reasons. They may have an idea they think will be a commercial success. They may want to help people in their community. They may be looking for a better way to meet their needs and those of others in the community.
Sometimes people will get together informally to achieve these type of goals. Sometimes people want to create a legally-recognized organization. There can be a variety of reasons for wanting to create a legally-recognized organization. A common reason is that it limits the liability of those creating the organization for things like debts of the organization. It also allows organizations to do things that otherwise only a person can do, like own property, borrow money and sue people.
There are two kinds of organizations that can be created under Saskatchewan law: co‑operatives and corporations. Both can be used to conduct business and can be either created as for-profit or non-profit organizations. However, there are a number of significant differences in how co‑operatives and corporations conduct business.
For-Profit Corporations and Co‑operatives: Why They are Created
A for-profit corporation or company is created to make money for the owners. They do this by producing goods or providing services and selling these to the public.
A for-profit co‑operative is also created to provide goods or services to its members.Although these types of co‑operatives are like corporations in that they sell goods or services,their main purpose is not to make a profit on the sale. Rather, it is to provide members with quality goods or services that are needed by that community. A co‑op grocery store would be an example of this type of co‑operative.
Where the Money Comes From
Every organization needs at least some funds to get started and may require ongoing injections of cash. For this reason both corporations and co‑operatives need to attract investors.
Corporations generally sell shares in their company to raise money. Shareholders can be people who have no involvement or particular interest in the company, other than in the potential to make a good return on their investment.
Co‑operatives, on the other hand, generally rely on their members to help fund the organization. These people may do things like lend the
organization money. Co‑operatives can also sell shares and offer a return on the shares. However, because their main purpose is not to make a profit for shareholders, outside investors may be harder to attract.
Who has Control?
In for-profit corporations shareholders ultimately control the company. The number of votes a shareholder has depends on the number of shares they own. Shareholders can give their voting rights to other individuals who then vote by what is called proxy. This means that a relatively small group of people can control the company if they own enough shares or have enough proxy votes assigned to them.
In for-profit co‑operatives the members control the organization. Each member has one vote only and proxy voting is not allowed.
Although ultimate control rests with shareholders or members, both corporations and co‑operatives are run by a board of directors. These boards oversee the affairs of the organization in the interests of the members or the shareholders. In a company the board can be made up of people who are not shareholders. In a co‑operative the people on the board must be members.
Who Makes Money?
When a corporation makes more money than it spends it is called a profit. When a co‑operative makes more money than it spends it is called a surplus.
The profits from a corporation are either reinvested in the company or distributed to the people who own the company (shareholders) as dividends. Dividends are paid on shares so the more shares a person owns the more money they will make if the company is profitable.
The surplus from a for-profit co‑operative is reinvested in the co‑operative and/or distributed to the members. The amount members receive depends on the member’s use of the co‑operative. The more they use the co‑operative, the more of any surplus they will receive.
Non-Profit Corporations and Community Service Co‑operatives
Sometime organizations are not created to generate profit or to financially benefit their members. These organizations can be set up as non-profit corporations or as community service co‑operatives.
Both of these types of organizations are created to meet the social, cultural or economic needs of members or the broader community and are controlled by members. They can make a surplus or a profit but it stays in the organization to be used to further the purposes of the organization and is not distributed to members.
The Co‑operative Principles
In fulfilling their purpose, co‑operatives must adhere to certain guiding principles, commonly known as the Co‑operative Principles. Generally, these principles are reflected in Saskatchewan law recognizing co‑operatives. Because of their centrality to co‑operatives, All 4 Each puts a particular emphasis on these principles. The following five lessons will more deeply explore and bring about understandings of what these principles are and how they manifest themselves in practice.
