While incorporating a co-op, and planning to raise money, words like ‘shares’, ‘capital’, and ‘share capital’ get used a lot. Building a sound business and raising funds requires an understanding of what these terms are and why they’re important for co-ops. This resource is meant to explain how to handle share capital in the context of a co-op.
Simply put, share capital is the money a business raises in exchange for ownership in the company. For co-ops, this usually refers to the money an individual pays to become a member.
Let’s complicate things a little. The way you become a member of a co-op depends on the process set out in the co-op’s bylaws. Usually this involves completing an application form and committing to use the services provided by the co-op. Another important step most co-ops use is requiring that members purchase shares in the co-op. Shares are individual units of ownership. Co-ops can issue two types of shares:
While this isn’t required, many co-ops assign their membership shares a $1 value. There are three important benefits that come with this decision:
Some co-ops incorporate without share capital – community service co-ops or co-ops that want to obtain charitable status, for example. In these cases, membership in the co-op may be free or there may be a membership fee. Membership fees can be required one time or annually. And, unlike shares, they don’t have to be repaid. Some co-ops use annual membership fees to help offset regular capital costs or weed out inactive members.
To get started, estimate how much money the co-op needs to raise. From there, determine how much members should pay for a membership and how many people could be involved. Starting on a business plan at this point is a good idea. A business plan provides good cost estimates and a solid understanding of what the co-op is going to do. Be sure to explore all the financing options available to a co-op to identify what will work best in your case.
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