You have an idea for a business activity that will generate a blend of social and/or environmental benefits and revenues for your organization. You are ready to launch a social venture. Under current legislation in Ontario, there is no legal structure that combines some of the benefits of both the for-profit and not-for-profit worlds. Your organization must carefully consider the current legal environment and existing legal structures and requirements associated with for-profit, not-for-profit, registered charities and co-operative corporations before you set up your organization in Canada.
If your organization will provide a common set of services to a group of members who will have an equal vote on how your service organization will be operated, and the business activities of your organization will be operated as nearly as possible on a cost recovery basis, you will likely consider incorporating as a Co-operative Corporation (“Co-op”). If this is not the case for your organization, then you may wish to consider an alternate form of organization.
In Canada, the Co-op is generally seen as the archetypical social enterprise, as it focuses on the needs of its members and the development of its communities. A Co-op is a special-purpose organization owned by members that use its services. Co-ops don’t usually have a share structure, but generally raise funds through loans from members and/or fees charged for their services. Members share equally in the governance of the organization and any surplus funds (profits) are generally distributed among members, donated for community welfare, or can be maintained to improve services to Co-op members. Interest on any member loan and dividend rates on shares owned by members (if the Co-op has elected to use a share structure) are limited to a maximum percentage fixed in the Co-op’s Articles of Incorporation by its members.
There are generally six types of Co-ops operating in Canada: financial; consumer; service; producer; worker; and multi-stakeholder. A familiar Co-op organization found across Canada is a centralized processing/storage facility funded and used by a number of independently owned farms.
Pros: This structure is well established across Canada, and the concept of community benefit is built right into it.
Cons: This structure is only suited to member-run initiatives, not the wider community of social ventures. A Co-op may lose its legal status if, for a period of three years or longer, it has conducted 50% or more of its business with non-members. A Co-op is not registered with Canada Revenue Agency and as such, cannot issue official tax receipts for any donations it receives. A Co-op is not exempt from paying tax unless it is a Co-op with not-for-profit (“NFP”) status, which must be specified in its Articles of Incorporation on set-up of the organization. The Co-op must also then comply with ongoing NFP conditions and restrictions as further described in the following article.
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Bridge, R.& Corriveau, S. (2009)Legislative Innovations and Social Enterprise: Structural Lessons for Canada.BC Centre for Social Enterprise. Retrieved November 10, 2009, from www.centreforsocialenterprise.com/f/Legislative_Innovations_and_Social_Enterprise_Structural_Lessons_for_Canada_Feb_2009.pdf
MaRS Discovery District. Legislative Innovations. white paper
Co-operative Corporations Act(R.S.O. 1990, c. C.35), ss. 143, 144. Retrieved August 17, 2009, from Service Ontario E-Laws Web site: www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90c35_e.htm