FAQ About Co-ops and Social Enterprises
Co-ops and social enterprises are formed by a group of three of more people to meet a common need for services, products, or employment. They exist in every sector of the economy and in every corner of the world. They can either be a for-profit business or not-for-profit enterprises, either way they are completely owned and democratically controlled by their members on the basis of “one member, one vote”. This means that regardless of how many shares a person might own, every member has an equal say in key issues facing the co-op. This is different from a corporation where the people with the most money/shares make the decisions. Like any business, co-ops must generate enough revenue to cover operating expenses and often pay a return on members’ investment. Co-ops and social enterprises differ in their values that put “people and planet above profits”. Co-ops are founded on seven fundamental principles practiced by more than 750,000 co-ops around the world.
- Voluntary and open membership
- Democratic member control
- Member economic participation
- Autonomy and independence
- Education, training, and information
- Co-operation among co-operatives
- Concern for community
See our page on Types of Co-ops.
Co-ops and social enterprises care about their members’ needs – not just generating profits – and actively contribute to the local economy as well as the social, cultural and democratic life of their communities. Co-ops and social enterprises empower individuals and encourage healthier and stronger communities by enabling people to pool their resources, share risks and achieve common goals.
They are based on a single set of values, recognized and practiced by co-operatives around the world:
- Voluntary and Open Membership
- Democratic Member Control
- Member Economic Participation
- Autonomy and Independence
- Education, Training and Information
- Co-operation among Co-operatives
- Concern for Community
The co-operative and social enterprise model is flexible enough to meet the widest range of needs and opportunities – from housing, health care and employment, to manufacturing, marketing and financial services. This model has a long history and a proven track record in social and economic development, having served thousands of groups in both rural and urban settings.
Co-operatives, social enterprises and credit unions are driven by both economic and social concerns. They are community-based organizations that care not only about the bottom lines of their businesses, but also about the needs of their members and the quality of life in their communities. Co-ops and social enterprises differ from other businesses in three key ways:
A Different Purpose
The primary purpose of co-operatives, social enterprises, and credit unions is to meet the common needs of their members, whereas the primary purpose of most investor-owned businesses is to maximize profit for shareholders.
A Different Structure
Co-operatives, social enterprises, and credit unions use the one-member/one-vote system, not the one-vote-per-share system used by most businesses. This helps the co-operative or credit union serve the common need rather than the individual need, and is a way to ensure that people, not capital, control the organization.
A Different Allocation of Profit
Whereas most businesses divvy up their profits based on the number of shares someone holds, co-ops and credit unions share profits among their members based on a method and calculation determined by the members themselves, often on the basis of how much they use the co-op or social enterprise. These organizations also tend to invest a share of their profits in improving service to members and promoting the well-being of their communities. Co-ops and social enterprises can be used as powerful tools to address issues of poverty in marginalized communities by creating social, human and financial capital, building networks, and generating economic benefits.
Co-operative Business Investor-owned Business Non-Profit Organization
Ownership The share is listed in the member’s name.
In general, a share may not increase in value. It can usually only be redeemed by the organization at its par value.
A member’s responsibility is limited to the amount of the shares he or she holds. Generally, a share carries no name. Unless registered, it belongs to the bearer.
A common share may increase in value. A shareholder may sell his or her shares to another person at an agreed-to price.
A shareholder’s responsibility is limited to the value of the shares he or she holds. There is no ownership. Members are taken on (or membership accepted) when they agree to pay annual dues conferring member status or to pay a one-time membership fee.
Anyone may become a member, whether or not they use or benefit from the services provided by the organization, as long as they support the purpose of the organization.
Voting A member is entitled to only one vote at a general meeting, regardless of the number of shares he or she holds. Certain cooperatives with a large and dispersed membership may introduce a delegate.
Structure for representing members (e.g., delegates representing multiple members from a geographic district).
No proxy voting allowed. The number of votes a shareholder is entitled to at a general meeting is equivalent to the number of shares held in the company.
A shareholder may use a proxy to vote his or her shares. Generally, one person, one vote. Delegates or proxies may be used depending on the governing legislation.
Sharing in the Surplus Cooperative legislation may limit or prohibit the payment of interest on share capital.
Surpluses may be paid into the reserve or to members in the form of patronage returns proportional to the business done by each member with the cooperative or social enterprise.
Some legislation allows cooperatives that issue investment shares to allocate part of their surpluses as dividends on those shares.
Some legislation may stipulate that a cooperative’s general reserve is indivisible, or divisible in whole or in part.
Some cooperatives, such as housing, health-care and day-care cooperatives, are structured as non-profit cooperatives. Surpluses are not distributed to members. There is no limit on share dividends.
Profits may be distributed in the form of dividends according to the provisions for each class of shares, or reinvested in the company. Surpluses do not belong to individual members but to the organization. They may, therefore, not be redistributed among the members but must be returned in full to the indivisible general reserve of the organization.
Co-operatives and social enterprises help thousands of Canadians to pursue their livelihood and successfully compete in the marketplace. They build local assets and keep wealth in the community by returning dividends to members while creating jobs and economic opportunities. Co-ops and social enterprises are rarely susceptible to pull-out or take-over since they are guided by the interests of local stakeholders, not outside investors, and are more likely to succeed than private sector companies. A recent study in Quebec showed 64% of co-ops and social enterprises were still in existence after 5 years of operation compared with 36% of other businesses.
Co-ops and social enterprises have also demonstrated a higher level of growth than the Canadian economy in general. National studies indicate that, between 1984 and 1997, the number of jobs in the co-op and social enterprise sector increased by 50% compared to a national average of 20% over the same time period.
Co-ops and social enterprises offer goods and services throughout the country however are especially important to many rural and remote communities. In some communities, co-operatives and social enterprises are the only providers of retail and financial services, health and home care services, communications and utility services, tourism facilities and other basic amenities.
Co-ops and social enterprises also provide informal schools of entrepreneurship, where members gain business and leadership training through the democratic governance process. More than 70,000 members hold leadership positions in Canada’s co-operatives and social enterprises at a given time.
Secure fulfilling jobs
Starting a worker co-operative or social enterprise is a great way to generate community employment. Jobs in co-ops or social enterprises are usually higher quality, more secure and more fulfilling than those in other organizations
Control over community services
Co-ops and social enterprises give members a voice in how non-profit community services such as housing, health, home care and child care are delivered. These organizations allow members to be in control of as well as to receive-services, and to have a real say in the quality and type of services delivered.
Start or expand small businesses
Co-ops and social enterprises enable people to pool energy and ideas to start or expand small businesses. People can increase revenues by sharing the costs of space and buying equipment, and by bidding collectively on large contracts. Members committed to working together, allow small entrepreneurs to share the risks-and the benefits-of running businesses.
Access affordable goods and services
Consumer co-operatives and social enterprises meet the needs of their members by providing goods and services. These organizations can provide affordable basic goods, including groceries and clothing, as well as services such as child and home care.
Co-ops and social enterprises help people earn more money by generating jobs, providing access to loans, and making basic goods and services more affordable.
Make new connections
Co-operatives and social enterprises bring people together, offer support and reduce the isolation many people experience. These organizations help members build connections and make new friendships through participation in co-operative activities.
Learn new skills
Participating in a co-op or social enterprise can help to build confidence and valuable leadership and management skills through participation on boards and committees.
A co-operative or social enterprise is the right choice if you have:
- A core group of people who are willing to work together and are committed to a common idea.
- Leaders who can chair meetings and keep the group together.
- An understanding of the principles of co-operation.
- People who are willing to share control of-and responsibility for-the organization.
- A way to raise sufficient start-up funding.
There are two types of co-ops/social enterprise:
For-profit Co-operatives and Social Enterprises
those in which members may redistribute any surpluses of the enterprise among themselves in the form of returns proportional to their business transactions with the organization during the fiscal year;
Not-for-profit Co-operatives and Social Enterprises
those in which any operating surpluses of the enterprise may not be distributed to the members and must be returned in their entirety to the organization’s general reserve (for example, housing, day care, health and other similar co-operatives or social enterprise).
A co-operative or social enterprise is incorporated either provincially or federally, depending on where it will carry out its business. If your organization plans to operate only in New Brunswick, it will be governed by the Cooperatives Associations Act of NB. You must apply to the Financial and Consumer Services Commission for incorporation. For more information contact:
Phone: (506) 444-4826
Fax: (506) 453-7474
P.O. Box 6000
Fredericton, NB E3B 5H1
A co-operative or social enterprise that plans to operate in two or more provinces must be federally incorporated under the Canada Co-operatives Act. For more information, visit Corporations Canada or contact:
Industry Canada, 9th Floor
Jean Edmonds Tower South
365 Laurier Avenue West
Ottawa, Ontario K1A 0C8
Toll-free (information): 1-866-333-5556