The Lowly Co-op Gets a Makeover
A miniboom in the number of start-ups incorporating as cooperatives is under way in Minnesota. Co-ops are organizations consisting of members who pool revenue or engage in collective buying. The new rules, known as Chapter 308B, corrected two flaws in the co-op structure. In the past, co-ops could only take equity from member companies; outsiders were not allowed to secure voting rights. There were also tax complaints: Co-op members could claim deductions on revenue derived from their main business, but as they diversified, they often found that the deductions didn't apply to the new revenue streams. Since these problems were fixed, nine ventures have incorporated as 308B co-ops. Wyoming and Tennessee have adopted similar laws, and about 12 states are drafting legislation.
The reform began as a way to enable large agricultural co-ops to raise funds to build facilities like grain silos. But other kinds of businesses have begun experimenting with co-ops too. Avalanche Corporate Technology, a Minnetonka software and intellectual property consortium that counts Best Buy among its members, set up shop in March. "The seamless and flexible type of structure," says CEO Jay Hansen, allowed member companies to share assets such as software and best-practices documents.
CoopMetrics, another 308Ber, hopes to take advantage of the boom by providing consulting services to new co-ops. The firm, based in Carrboro, N.C., incorporated in Minnesota so it could raise $300,000 in capital. "That allowed us to add developers, hardware, software, and markets," says CEO Walden Swanson. Soon, he predicts, there'll be so much demand for co-op services that he worries about "expanding too fast." In the co-op world, that's a novel concern.