What Is a Cooperative and How Do You Start One?

Last updated November 4, 2026 · 6 minute read

A cooperative, or co-op, is a business or service owned and run democratically by the people who use it or work in it. To start one, gather a small group with the same need, test whether the idea can pay its way, choose a legal structure your country or state allows, write bylaws, raise money and set up regular meetings. Rules differ by place, so talk to a lawyer who knows local co-op law before you sign anything or collect money.

What is a cooperative?

The International Cooperative Alliance (ICA), which represents co-ops worldwide, describes a co-op as people who join voluntarily to meet shared economic, social and cultural needs through an enterprise they own jointly and control democratically (1995). The US Department of Agriculture (USDA) says the people who use a co-op own it, control it and share its benefits (2015).

The ICA lists seven principles (1995). In short:

• Open membership: anyone who can use the co-op and accepts its duties may join.
• Democratic control: members set policy and elect leaders, usually one vote each.
• Economic participation: members invest fairly and decide how to use any surplus.
• Independence: members stay in control, even when working with governments or funders.
• Education: the co-op trains members, leaders and staff.
• Cooperation among co-ops: co-ops work together at every level.
• Concern for community: members approve policies that support sustainable development of their communities.

What are the main types of cooperatives?

The University of Wisconsin Center for Cooperatives groups co-ops by who the members are and counts credit unions and housing as consumer co-ops (2026). The main types:

• Consumer co-ops are owned by their customers, such as shoppers at a grocery co-op or households served by an electric co-op.
• Worker co-ops are owned by the people who work in them.
• Producer co-ops are owned by farmers, artists or other makers of similar goods, who pool their strength to bargain on price and reach larger markets.
• Housing co-ops let residents own a building together, typically holding a share and a right to live in a home (U.S. Co-ops, 2026).
• Credit unions are financial co-ops owned by their members. They face extra rules: in the UK, a credit union needs authorization from the Prudential Regulation Authority and registration with the Financial Conduct Authority (FCA) before it can offer services (FCA, 2026).

Why do people start co-ops, and what can go wrong?

USDA says people form co-ops to answer a specific problem or opportunity, such as raising income or getting a service. It says a co-op is worth exploring when other businesses are not meeting a group's need or are unlikely to meet it (2015).

USDA calls starting a co-op complex and time-consuming, and warns that co-ops with little or no member investment often fail (2015). Common pitfalls include:

• No clear mission, or weak planning.
• Too little commitment from members, or too little leadership from the founders.
• Overestimating sales and underestimating costs.
• Too little money: the first months or years may not be profitable.

Steps 1 and 2: Find your group and test the idea

Step 1: name the shared need and find a core group. Start with a few people who share the problem and will show up. USDA suggests a first meeting of possible members, then a steering committee of respected people with sound business judgment (2015).

Step 2: check demand and money before you build anything. Survey possible members about what they need, how much they would use the co-op and what they could invest. USDA advises cautious estimates, because not everyone interested will join at first and not everyone who joins will use it fully (2015). Then do a feasibility study, which tests whether the idea can work, and write a business plan.

A made-up example: eight neighbors in a town with no grocery store explore a food co-op. A survey finds too few likely shoppers, so the group pauses and tries a smaller step, such as a shared bulk order. USDA says stopping early saves time and expense (2015).

Step 3: Choose a legal structure

The right structure varies by country, and often by state or province, so ask a lawyer who knows local co-op law. Examples:

• United States: every state has laws for forming co-op corporations, though some cover only agricultural producers. Some groups use general corporation law and add co-op rules to their bylaws. Members of an incorporated co-op are generally not personally liable for its debts beyond their investment (USDA, 2015).
• United Kingdom: a co-op can register with the FCA as a co-operative society (FCA, 2026). Model rules from a sponsoring body, such as Co-operatives UK, can simplify registration (FCA, 2022).
• Canada: federal incorporation is for co-ops operating in at least two provinces or territories; most are regulated under provincial or territorial law (Canada Co-op, 2026).
• Australia: states and territories register co-ops under a shared framework, the Co-operatives National Law (Business Council of Co-operatives and Mutuals, BCCM, 2026).

Steps 4 and 5: Write bylaws and raise money

Step 4: write bylaws and a member agreement. Bylaws are the co-op's rule book. USDA says they usually cover who can join, what members owe and receive, voting, how directors are chosen, how surplus and losses are shared, and how the co-op can close (2015). In a pre-membership agreement, people promise to join, use the co-op and invest a set amount.

Step 5: raise money. Co-ops are usually funded by members, loans and sometimes grants. USDA calls members the best source but says member money alone rarely covers a new co-op, and cautions against relying on grants (2015).

Fair-share rules say who gets what. Under the ICA's third principle, members contribute capital fairly, usually earn little or no return on it, and decide whether surplus, the money left after costs, goes to reserves, back to members in proportion to their use, or to other approved purposes (1995). USDA names patronage refunds, which return earnings to members by their use, as a co-op practice (2015). Put the rules in your bylaws and ask an accountant who knows co-ops about tax.

Before taking pledges, USDA advises giving people a written statement of how the money will be used and returned if the project stops. It also says a lawyer should review any plan to sell stock, to meet state and federal law (2015).

Steps 6 and 7: Run meetings and train members

Step 6: set up governance. In most co-ops, members elect a board, which sets policy and hires a manager to run daily business (USDA, 2015). Hold a first members' meeting to adopt the bylaws and elect the board. Then meet regularly, with a published agenda.

Step 7: train members and keep learning. The ICA's fifth principle says co-ops provide education and training for members, elected leaders, managers and staff (1995). USDA adds that member education never ends because members come and go (2015).

What to do next, and where to get help

Write the shared need in one sentence, list a few people who share it, and invite them to a first meeting. In the SOS app, the free Worker Coops screen in Community has a Start One tab with a startup checklist you can tick off, kept on your device and written mainly for the United States.

Ask early for advice from a co-op development group, a lawyer and an accountant who know co-ops. Places to start:

• Worldwide: the ICA website has a search for the co-op organization closest to you (ICA, 2026).
• United States: the University of Wisconsin Center for Cooperatives lists development help by state, and CooperationWorks! calls itself a national organization of co-op development centers (both 2026). USDA's Rural Cooperative Development Grants fund nonprofits and universities that help people start or improve rural co-ops (USDA, 2023).
• United Kingdom: Co-operatives UK says it is the national body that promotes and develops co-ops (FCA, 2022). Co-operative Development Scotland, part of Scottish Enterprise, advises Scottish groups on legal structure and planning (2026).
• Canada: Canada Co-op, also called Co-operatives and Mutuals Canada, suggests contacting a provincial or sector association (2026).
• Australia: BCCM has pages on planning, starting and running a co-op (2026).

Sources

1. Cooperative identity, values and principles (International Cooperative Alliance, 1995)
2. About International Cooperative Alliance (International Cooperative Alliance, 2026)
3. How to Start a Cooperative (Cooperative Information Report 7) (USDA Rural Development, copy hosted by the University of Wisconsin Center for Cooperatives, 2015)
4. Types of Co-ops (University of Wisconsin Center for Cooperatives, 2026)
5. Housing Co-ops (U.S. Co-ops (formerly NCBA CLUSA), 2026)
6. Types of mutual society (Financial Conduct Authority (UK), 2026)
7. Model Rules Sponsors List (Financial Conduct Authority (UK), 2022)
8. Starting a co-op (Canada Co-op (also called Co-operatives and Mutuals Canada), 2026)
9. Co-operatives National Law (Business Council of Co-operatives and Mutuals (BCCM), Australia, 2026)
10. Co-op Development Resources (University of Wisconsin Center for Cooperatives, 2026)
11. CooperationWorks! - The Cooperative Development Network (CooperationWorks!, 2026)
12. Notice of Funding Opportunity for Rural Cooperative Development Grants for Fiscal Year 2023 (USDA Rural Business-Cooperative Service, in the Federal Register, 2023)
13. Co-operative business support (Scottish Enterprise (Co-operative Development Scotland), 2026)