A cooperative, or co-op, is an organization owned and controlled by the people who use the products or services the business produces. Unlike traditional businesses that aim to earn profits for investors, co-ops exist primarily to benefit their members.
Quick snapshot:
đ˘ Business type: Member-owned organization
đ Startup cost: Varies; typically $1,000-$10,000
đ Time to launch: 3-12 months
đ Key feature: One member = one vote
â Best for: Community-focused entrepreneurs, farmers, artists, etc.
Co-ops are often created to lower costs, increase bargaining power, improve service quality, or provide products that profit-driven companies ignore. They offer a powerful alternative for entrepreneurs looking to build something meaningful, sustainable, and community-centered.
In this guide, Iâll break down how cooperatives work, why they might be the right model for your business, and exactly how to start one step by step.
How does a cooperative work: Ownership & control
In a traditional business, ownership is usually based on how much money someone invests â more shares, more control. But in a cooperative, ownership is tied to membership and participation, not profit or stock.
Hereâs what makes it different:
- Ownership is use-based, not investment-based: You become a co-op member by using its services, buying its products, or contributing labor, not by buying stock just to earn dividends.
- Control is shared equally â one member, one vote: In most corporations, voting power is based on shares: more shares = more say. In a co-op, every member gets one vote, no matter how much money or time theyâve put in. This ensures decisions reflect the will of the group, not just the biggest investors.
- Members are actively involved: Whether itâs electing the board, approving major changes, or setting long-term goals, members have a direct role in shaping how the co-op runs. This structure promotes collaboration and shared responsibility.
Co-op vs LLC vs corporation: Key differences
Before you decide to form a cooperative, it helps to understand how it stacks up against other common business structures like LLCs and corporations. While all three offer legal protections and legitimacy, they differ in ownership, control, profit distribution, and purpose.
Hereâs a side-by-side comparison to help you figure out which model might work best for your goals:
Types of cooperatives
Cooperatives come in many forms, depending on who the members are and what they need. Below are the most common types of co-ops, how they function, and real-world examples of each.
Producer cooperative
Members: Independent producers, such as farmers, artisans, or freelancers
This type of co-op allows members to join forces to market, distribute, or sell their products collectively. By working together, members reduce costs, improve pricing, and reach more customers than they might on their own.
Example: Co-Op Farmers Market in Scranton, PA, brings together local farmers to sell their produce as a collective at community markets.
Consumer cooperative
Members: Shoppers who use the co-opâs goods or services
Consumer co-ops exist to give members better access to quality goods and services, often at lower prices. Members typically receive benefits like discounts, profit-sharing, and voting rights on business operations.
Example: Deep Roots Market in Greensboro, NC, is an organic grocery store owned by its shoppers, who buy memberships and help guide store policies.
Housing cooperative
Members: Residents who live in and co-own the housing units
Housing co-ops offer an alternative to renting or traditional homeownership. Members share ownership of the building and help make decisions about management, maintenance, and community rules.
Example: Boulder Housing Coalition in Colorado operates affordable, sustainable homes managed by the people who live in them.
Credit union
Members: Account holders who use the credit union for banking
Credit unions are financial cooperatives that offer savings accounts, loans, and other banking services. Members pool their money and benefit from lower fees, better interest rates, and democratic control of the institution.
Example: Aguadilla Coop in Puerto Rico provides financial services to its members and reinvests profits back into the community.
Artisan cooperative
Members: Artists, crafters, and makers
Artisan co-ops are formed so members can share costs related to marketing, retail space, and supplies. They help small-scale creatives gain visibility and sell their work more effectively.
Example: Artisansâ Co-op in Bodega, CA, showcases and sells handmade work from over 50 local artists in a shared retail gallery.
Worker-owned cooperative
Members: Employees who work in and co-own the business
In this model, employees have an ownership stake and an equal vote in company decisions. Profits are shared among the workers, and all members participate in managing the business.
Example: Rainbow Grocery in San Francisco, CA, and Mirisata in Portland, OR, are both run and owned by the workers who make day-to-day decisions and share profits equally.
Who should (or shouldnât) start a cooperative
A co-op might be right for you if:
â You want equal say and shared responsibility
â Youâre solving a need for a group of people (like artists, farmers, freelancers, or community members)
â You value transparency, collaboration, and social impact
It might not be the best fit if:
â You want full control over the business
â You need fast capital from outside investors
â You prefer a more traditional or profit-driven model
How to start a cooperative business
When starting a business as a cooperative, itâs important to have an understanding of the big picture. Here are the basic steps to help you develop a realistic idea of what starting and legally forming a cooperative takes, as well as how to keep the development process running smoothly.
Step 1: Form a steering committee
Before anything else, youâll need a small group of committed people who represent your potential co-op members. This is your steering committee â the founding team that will guide the early planning stages and help turn your idea into a working business.
Your committee should ideally include people with a mix of skills: someone good with numbers, someone familiar with the industry, and someone with experience in organizing or leading projects. Most importantly, everyone should be aligned with the co-opâs purpose and values.
In this stage, your group will:
- Define the mission, goals, and core values of the cooperative
- Identify the potential member base and what their needs are
- Assign roles and responsibilities
- Set a timeline for researching, planning, and launching
Youâll also want to start hosting community meetings or info sessions to test interest and build momentum. These gatherings help ensure that the co-op is being built with future members â not just for them.
Step 2: Conduct a feasibility study
Now that youâve formed a steering committee and gathered initial interest, itâs time to dig into the details and figure out if your co-op idea is realistic. A feasibility study helps you assess whether the cooperative can succeed before investing too much time or money.
This step is all about answering the question: Can this work?
Your study should explore:
- Market demand: Is there a real need for the products or services your co-op will offer? Who are your competitors, and how will your co-op stand out?
- Member interest: Will enough people join and support the co-op financially or through participation?
- Startup costs: What will it take to get off the ground â facilities, equipment, staffing, supplies?
- Ongoing expenses: What will it cost to operate month to month?
- Revenue potential: How will the co-op make money? Will it be enough to sustain the business?
- Legal and regulatory requirements: Are there state or local rules that could affect your operations?
If your team doesnât have the expertise to do this in-house, consider bringing in a consultant or reaching out to your local Small Business Development Center (SBDC) or cooperative development center. Some states even offer grants or technical assistance for co-op startups.
Step 3: Draft bylaws and incorporate
Once your feasibility study confirms that the co-op is a good idea, itâs time to make things official. This step involves incorporating your cooperative as a legal business entity and creating the rules that will govern how it operates.
Draft your bylaws
Bylaws are the operating rules for your co-op. They outline how decisions will be made, how profits are shared, how board members are elected, and more. Think of them as the ownerâs manual for your co-op.
Your bylaws should cover things like:
- Membership requirements and responsibilities
- How voting works (remember â one member, one vote!)
- How the board of directors is elected and what their duties are
- How meetings are scheduled and conducted
- Profit distribution or patronage dividend rules
- How to amend the bylaws in the future
You donât need to get every detail perfect from the start â your bylaws can evolve over time as the co-op grows.
File Articles of Incorporation
Next, youâll need to register your co-op with your state like any other business. This involves filing Articles of Incorporation under your stateâs cooperative statute. Not all states have specific co-op laws, so check your local requirements or consult an attorney familiar with cooperative businesses.
Youâll likely need to include:
- The co-opâs legal name
- Its business purpose
- Principal office address
- Registered agent information
- The structure of the board of directors
Filing fees and paperwork vary by state, but this step officially gives your cooperative legal standing.
Step 4: Build a business plan
With your co-op now officially incorporated, itâs time to get organized with a solid business plan. A business plan is your roadmap â it outlines how the cooperative will operate, serve its members, and stay financially sustainable.
Even though a co-op isnât profit-driven like a traditional business, it still needs to be financially sound and well-structured. This step is especially important if youâre planning to apply for loans or grants, or if you need to recruit more members.
What to include in your co-op business plan:
- Executive summary: A short overview of your co-op: what it does, who it serves, and what makes it unique.
- Mission & vision: Clearly state the cooperativeâs purpose, values, and long-term goals.
- Market analysis: Include data and insights from your feasibility study. Define your target audience, your competition, and the demand for your co-opâs products or services.
- Membership structure: Explain who can join, what membership involves (fees, participation), and how benefits will be distributed.
- Products or services: Describe what your co-op will offer, how it will be delivered, and what makes it valuable to members.
- Marketing & outreach plan: How will you attract and retain members? Detail your promotion strategies, including digital marketing, community outreach, and referral programs.
- Management & governance: Outline how the co-op will be managed, including the roles of the board of directors, staff, and general members.
- Financial plan: Include startup costs, funding sources, operating expenses, and revenue projections. Show how the co-op will cover its costs and sustain itself long-term.
Not sure where to start? Check out our step-by-step guide on how to write a business plan. You can also explore the different types of business plans to find a format that fits your co-opâs needs.
If youâre still in the early planning phase, a one-page business plan is a great way to organize your thoughts and share your idea with potential members or supporters.
Step 5: Raise capital and funding
Every cooperative, big or small, needs startup capital to get off the ground. Whether itâs renting a space, purchasing supplies, hiring staff, or launching a website, youâll need money to bring your co-op to life.
Unlike traditional businesses that rely heavily on outside investors, co-ops typically raise funds through their members, community support, and mission-aligned lenders. The good news? You have options.
Ways to fund your cooperative
Thereâs no one-size-fits-all approach to financing a co-op. Your strategy will depend on your co-opâs purpose, size, and membership base. Below are some of the most common and effective ways to raise capital. Many co-ops use a combination of these to get started.
- Member investments: Most co-ops start by collecting membership fees or share purchases from founding members. These funds not only help cover startup costs but also give members a financial stake in the business. You can structure contributions as refundable shares, one-time fees, or tiered buy-ins, depending on your bylaws.
- Grants: Some nonprofits and government agencies â especially at the local or state level â offer grant programs for co-ops, particularly in agriculture, housing, and underserved communities. Look into USDA Rural Development grants, cooperative development foundations, or community development block grants.
- Loans: Cooperatives can apply for small business loans just like other companies. Local credit unions, community development financial institutions (CDFIs), or lenders experienced with co-ops may be more flexible and mission-aligned than big banks. Be ready to show a solid business plan and a clear repayment strategy.
- Crowdfunding & community support: Platforms like Kickstarter or GoFundMe are great tools for mission-based co-ops. Offer early access, discounts, or member perks in exchange for contributions. This not only raises funds but builds community engagement before you even launch.
- Donations or sponsorships: Depending on your co-opâs purpose (especially if itâs community- or cause-based), you may be able to raise money through donations or partnerships with aligned organizations.
Pro tip: Show how funds will be used
Clearly outline how much money you need and what it will cover. For example:
- Lease or renovations: $10,000
- Equipment: $5,000
- Initial inventory: $3,000
- Marketing and outreach: $2,000
- Operating buffer: $5,000
Being transparent builds trust with members and supporters and increases your chances of securing funding.
Step 6: Launch your co-op
Once your funding is in place and your systems are ready, itâs time to officially open your doors and start serving members. This is where all your planning pays off, and where your cooperative starts becoming a real part of the community.
Key tasks during launch
Launching your cooperative is more than just opening for business â itâs about setting the tone for how your co-op will operate, serve its members, and grow over time. Here are some key tasks to focus on as you move from planning to action.
- Set up operations: Finalize your location, equipment, supplies, and any technology needed for daily operations. Hire staff or designate member roles if applicable. Make sure everyone understands their responsibilities and how the co-op will run day to day.
- Onboard your first members: Begin enrolling members officially, explaining their benefits, voting rights, and responsibilities. Have a simple process in place for signing up, paying dues, and participating in decisions.
- Promote your launch: Host a soft opening, launch event, or open house to generate buzz. Use email marketing, social media, local press, and community partnerships to spread the word. Donât forget to highlight what makes your co-op different â and why it exists.
- Stay member-focused: Keep communication open and frequent. Ask for feedback early and often. Transparency and member engagement are the lifeblood of any cooperative â especially in the early days.
- Start tracking & measuring: Set up basic tracking for finances, member participation, and performance. Use this data to improve operations and make better decisions as the co-op grows.
Advantages and disadvantages of a cooperative
Like any business model, cooperatives come with both strengths and challenges. Understanding these upfront can help you decide if this structure is the right fit for your goals.
Co-op success tips
Want your cooperative to thrive long-term? These quick tips can help you build a sustainable, member-powered business from day one.
- Start with strong values. Be clear about your mission, who you serve, and why your co-op exists. Values-based leadership builds lasting member support.
- Communicate often and transparently. Regular updates, open meetings, and shared decision-making keep members engaged and informed.
- Invest in member education. Provide training and resources to help members understand their rights, responsibilities, and the co-op business model.
- Use tools that make operations easier. From member management software to accounting tools, the right tech keeps things running smoothly, even with limited staff.
- Revisit your business plan regularly. As your co-op grows, update your goals, financials, and marketing strategy to stay aligned with member needs.
- Celebrate milestones together. Recognize successes, highlight member contributions, and keep the sense of community strong.
Frequently asked questions (FAQs)
Click through the sections below to read answers to common questions about cooperatives:
Cooperatives are organizations owned and controlled by the people who utilize the products or services the business produces. Unlike traditional businesses driven solely by profit, cooperatives prioritize the well-being and benefits of their members. Members, who can be consumers, producers, or workers, actively participate in decision-making and share in the rewards of the cooperativeâs success.
In simple terms, a cooperative, or co-op, is a business model where individuals come together to collectively own and manage a business. Whether itâs a group of consumers joining forces for bulk purchasing, farmers collaborating to market their produce, or workers owning and running a company, cooperatives operate based on principles of shared ownership, democratic control, and mutual benefit.
The cooperative business definition refers to enterprises structured around the cooperative model. These businesses are characterized by member ownership, democratic governance, and a focus on meeting the needs of their members. The cooperative business can take various forms, including consumer cooperatives, producer cooperatives, and worker cooperatives, each tailored to the specific interests of its members.
An example of a cooperative is a consumer cooperative, like a food cooperative or retail cooperative. For instance, Deep Roots Market operates as a consumer cooperative, where customers become âownersâ by purchasing memberships. This model allows the cooperative to provide high-quality, organic grocery products to its local market while ensuring the members have a say in the businessâs decisions.
Bottom line
A cooperative offers a flexible model for new businesses. It can be set up by employees, consumers, local residents, and organizations. There are plenty of different models for this process, so you should explore your options to determine what best suits your groupâs needs.
Unsure if this is the right business model for your company? Check out our guide for more information on the best business structure options for small businesses.