Employee Ownership: A Guide to Types of Cooperative Business Models

The cooperative business model provides a compelling alternative to traditional business ownership, especially for those prioritizing employee ownership, democratic governance, and community alignment. In this guide, we explore the most common types of cooperative business models, explain how each one works, and outline how to determine which model best fits your goals. We also spotlight how Capital Impact Partners, part of the Momentus Capital branded family of organizations, supports various types of employee-owned businesses through flexible co-op financing options.

What is a cooperative business model?

A cooperative business model is an enterprise owned, governed, and operated for the benefit of its members. Unlike traditional companies that distribute profits based on capital investment, cooperatives prioritize use and participation. This means that members use the cooperative’s services or products, and their participation in decision-making and ownership is essential for democratic control and long-term sustainability. Members – whether workers, consumers, or producers – share control, usually following the principle of “one member, one vote,” and also benefit financially based on their engagement.

Common Features of the Cooperative Business Model

Most cooperatives share the following characteristics:

• Democratic Governance: Cooperative businesses follow the principle of one member, one vote, regardless of the amount of capital contributed. This ensures that control remains equitable among members and prevents decisions from being driven solely by financial power. 
• Shared Financial Benefit: Profits or surpluses are either reinvested in the cooperative to improve services or distributed to members based on their level of participation, not capital investment. This reinforces the idea that co-ops serve their users, not investors. 
• Member or Community Control: Members have the authority to elect leadership and shape strategic direction, fostering accountability and alignment with community needs. 
• Long-Term Business Continuity: Cooperatives are designed to be resilient and enduring. Their structure promotes reinvestment in long-term goals and values (PDF) rather than short-term profit maximization. 

Types of Cooperative Business Models

Cooperative business models can be adapted to a range of sectors and needs. The most common are:

• Worker Cooperatives
• Consumer Cooperatives
• Producer Cooperatives
• Purchasing (Shared Services) Cooperatives
• Housing Cooperatives
• Financial Cooperatives
• Multi-Stakeholder Cooperatives
• Platform Cooperatives
• Investment Cooperatives
• Social Cooperatives

Worker Cooperatives

A worker cooperative is an employee-owned business in which the workers own the majority of shares and control decision-making. Employees earn a share of profits and elect the board. These models are ideal for small businesses considering ownership succession. An illustrative example is Obran Cooperative, a worker-owned cooperative conglomerate corporation that is giving decision-making processes and capital back to its caregivers, operators, and health care workers. Capital Impact partners supported Obran’s acquisition of a home health care provider in Los Angeles using one of our impact investment products. 
ChiFresh Kitchen is another example of a worker cooperative. They are a local food service cooperative in Chicago that received a grant from Capital Impact Partners’ 2020 Co-op Innovation Award. ChiFresh sells meals to local residents and businesses, providing a vital healthy food resource to the community.

Consumer Cooperatives

Consumer cooperatives are owned and controlled by the people who buy the goods or use the services. They’re common in grocery retail, utilities, and housing.

Producer Cooperatives

Producer cooperatives are formed by independent producers (e.g., farmers, craftspeople) who come together to market, process, or distribute their goods jointly.

Purchasing (Shared Services) Cooperatives

Purchasing cooperatives allow small businesses or independent contractors to increase their purchasing power by buying goods and services collectively. The Independent Drivers Guild started off as a purchasing cooperative formed to reduce costs for rideshare drivers in NYC, and a recipient of Capital Impact Partners’ 2019 Co-op Innovation Award. They have now morphed into a worker cooperative.

Housing Cooperatives

Housing cooperatives are collectively owned and governed by residents who manage shared property to ensure long-term affordability and control. Capital Impact Partners has supported NASCO Properties, Inc., with lending to help them acquire existing properties. NASCO is a housing cooperative that offers students, families, and older adults low-cost housing with an unusual twist. The residents of the buildings rent their properties, but run the facilities cooperatively, committing to maintain the buildings and shared spaces, hold regular meetings, and share communal meals.

Financial Cooperatives

Financial cooperatives include credit unions and cooperative banks, member-owned financial institutions offering savings, loans, and other financial services.

Multi-Stakeholder Cooperatives

Multi-stakeholder cooperatives include more than one member class, such as workers, users, and community investors, with shared governance across groups. They are well-suited for community-serving health care, education, or food systems.

Platform Cooperatives

Platform cooperatives apply cooperative principles to digital platforms. They sell goods or services primarily through a website, mobile app, or protocol and rely on democratic decision-making and shared platform ownership by workers and users.

Investment Cooperatives

Investment cooperatives are common in the health care, retail, agriculture, art, and restaurant industries. An investment cooperative is created for the purpose of the purchase, rehabilitation, and reuse of residential and commercial real estate.

Social Cooperatives

Focused on social goals such as employment or delivery of community services, these cooperatives often blend multiple structures and operate as mission-aligned organizations.

How to Choose the Right Cooperative Business Model

Identify Your Primary Stakeholders 

Determine who will own and benefit from the cooperative. The identity of your primary stakeholders will influence the type of cooperative model that best suits your organization. For example, a worker cooperative is owned and governed by employees and is ideal for businesses aiming to promote employee ownership.​ A consumer cooperative is suitable for organizations focused on serving member needs, such as retail or utility services.​

Define Your Mission and Objectives

Clarify the core mission and long-term objectives of your cooperative. Understanding your goals will help determine the cooperative model that aligns with your values and desired impact. Consider:​

• What community needs does your cooperative aim to address?
• How does your cooperative plan to deliver value to its members?
• What are your long-term sustainability and growth plans?​

Assess Governance Structure and Member Participation 

Evaluate how decisions will be made and the level of member involvement in governance:​

• Democratic Control: Most cooperatives operate on a one-member, one-vote principle, ensuring equal say in decision-making regardless of capital contribution.​
• Board of Directors: Elected by members to oversee operations and make strategic decisions.
• Member Meetings: Regular meetings to discuss and vote on important issues, fostering transparency and accountability.​

Evaluate Financial Requirements and Resources

Consider the financial aspects of starting and sustaining your cooperative:​

• Start-up Capital: Determine the amount of capital needed to launch operations and how it will be raised (e.g., member contributions, loans, grants).​
• Revenue Streams: Identify potential income sources to ensure financial viability.​
• Access to Financing: Explore financing options tailored to cooperatives, such as those offered by Capital Impact Partners, which provides lending, impact investments, and grant funding to support cooperative development.​

Understand Legal and Regulatory Considerations

Research the legal requirements for establishing a cooperative in your jurisdiction:​

• Incorporation: Determine the appropriate legal structure and process for incorporating your cooperative.
• Bylaws and Policies: Develop governing documents outlining membership criteria, decision-making processes, and operational procedures.​
• Compliance: Ensure adherence to local, state, and federal regulations affecting cooperatives.​

Financing & Support for Cooperatives

Cooperatives typically fund operations through a combination of:

• Member Buy-In: Members purchase shares or contribute capital to help fund startup costs and build equity in the business.
• Co-op Financing: Capital from community lenders, Community Development Financing Institutions (CDFIs), and mission-aligned institutions helps cover growth or working capital needs. This financing often features flexible terms tailored to the unique structure of cooperative enterprises. 
• Grants and Awards: Philanthropic or government support may be available for early-stage cooperatives or those with social missions.

Capital Impact Partners is one of many organizations supporting employee-owned businesses. We support cooperative businesses through:

• Lending: We offer co-op financing through flexible loans tailored to the unique structure and cash flow needs of cooperative businesses.
• Impact Investments: We offer a flexible, non-dilutive investment capital approach that targets community-centric companies, including employee-owned businesses 
• Co-op Innovation Awards: These annual grants help early-stage and emerging cooperatives scale.

The Bottom Line

The cooperative business model is a flexible and powerful tool for advancing employee ownership, community control, and long-term impact. Whether you’re forming a worker cooperative to support the transition of an existing business, launching a housing cooperative to maintain affordability, or joining forces to improve purchasing power, there’s a cooperative model built for your goals.