To incorporate a business means to establish it — the corporation — as a separate entity, independent and distinct from any of the individuals involved. In some states, co-ops can incorporate under specific cooperative statues. Co-ops can also incorporate under other statutes (such as for-profit or non-profit codes) or under cooperative statutes in other states.
Advantages of incorporation:
- Liability is limited. When a business is incorporated, the individuals involved are generally no longer directly liable for the actions of the business. This generally means that a co-op’s members will not be liable for any actions or debts held by the co-op.
- The co-op’s structure is clearly documented. To incorporate, your co-op will be required to prepare Articles of Incorporation and, generally, bylaws. These documents spell out the rights and responsibilities of members, as well as the specific procedures for the co-op’s decision making. Having clear, written procedures will make co-op operations easier, especially if you have to deal with problem situations.
- A board of directors is established. All states require that someone be accountable for the actions of a corporation. That someone is the board of directors. Every corporation is required to have one.
- Increased credibility for your co-op. An incorporated business has better credibility with potential members, suppliers, bankers, and other outside business associates.
- Access to capital. Very few, if any, lenders will loan money to unincorporated groups.
The main disadvantages of incorporation is cost. You will need to hire an attorney to prepare or review your Articles of Incorporation and bylaws – don’t take another co-op’s materials and adopt them without a thorough legal review. Incorporation also takes time and effort. But if you’re serious about starting a co-op, the time and money spent will be good investments. Incorporation will increase your co-op’s credibility and clarify how your group will make decisions. If you proceed with incorporation, be sure to consult an attorney familiar with cooperative law.