A Cooperative Business Association is a type of business organization that is operated and owned by a group of individuals, for their own mutual benefit. Cooperative business associations exist mainly to provide some sort of economic service to its members. Also, cooperatives distribute profits to individual members rather than amassing corporate profit for the entity.
Cooperative associations are also called "associations" or "co-ops". There are many different types of cooperative associations. A common form of a cooperative association is a cooperative housing association. Cooperative business associations are typically governed by state statutes. However, they may sometimes be inferred from the nature of the business organization even if no statute exists.
Cooperative business associations are often very different from other types of business formations such as a corporation. There are a number of characteristics and features that are unique to cooperative business associations:
- Control is distributed equally amongst members, regardless of the number of shares that are held by each shareholder.
- Each shareholder is granted equal ownership rights and may exercise an equal amount of control in the association.
- Profits earned by the cooperative are typically divided in a proportional manner. Profits are divided according to the level of participation by each individual member. This is different from distributions in a corporation, which are usually based on the amount of capital that each member had contributed to the company.
Yes, a business organization that incorporates as a cooperative association becomes a distinct legal entity. As such, the cooperative association may be sued as an entity.
In most cases, it is required that a statute exists allowing the co-op to be sued as an entity before a party can bring suit against it in a court of law. Some courts allow a cooperative association to be sued as an entity even without a statute, for example by virtue of necessity.
Cooperative associations will continue to function as a separate legal entity even if an individual member withdraws or is expelled from the association. Individual members who withdraw will not have any possessory interests in the collective assets until the association undergoes liquidation.
Cooperative business associations can be a beneficial type of business structure for many organizations. If you are involved in a co-op or are considering creating one, you may wish to speak with a business lawyer for advice and counseling. Your attorney will be able to assist you with document review and other tasks. An experienced lawyer can explain the laws of your individual jurisdiction that regulate cooperatives.