I am oftentimes asked about the best choice of business entity for a farm/ranch, agri-business or food entrepreneur. There is no one-size fits all answer to that question as each type of business entity offers different strengths and weaknesses. It is important to pick the right business entity for your specific type of enterprise – the answer to that question may change over time. I would like to encourage all of my readers, no matter the size of your business, to have a relationship with a food and agriculture lawyer licensed in your jurisdiction and have an ongoing conversation on this topic. This blog series will work through the major types of business entities. You can also view my Powerpoint presentation on the choice of business entities here.
A cooperative (“co-op”) is an association of multiple people organized to carry on business on a cooperative basis for the benefit of its members. For examples, a co-op might be formed in order to produce and market food products on a collective basis. Pursuant to Section 11 of NY Cooperative Corporations Law (“CCL”), there needs to be five or more organizers in order to form a cooperative. Owners of a cooperative are called “members.” The members of a cooperative will be given the same limited liability protection as a corporation or limited liability company.
Under Section 15 of the CCL, agriculture cooperatives may be formed for the purposes of “marketing, processing, manufacture, sale or other dispositions of agricultural products, agricultural waste product, or agricultural compost, … or the purchase of supplies for producers of agricultural products.” An example of a non-agricultural cooperative commonly found in New York is a cooperative condominium association.
A cooperative is more akin to a corporation as opposed to a partnership. For example, the members elect a Board of Directors to manage the corporation. The Board of Director may in turn appoint officers. However, a co-op is more democratic than corporations with each member receiving one vote. Furthermore, members of a cooperative are primarily looking for access to collective markets or services.
This is an excerpt from my book that I co-authored with Pat Dillon, an Iowa food and agriculture lawyer. You can purchase a copy of the book “Field Guide: Legal Guide for New York Farmers and Food Entrepreneurs” on Amazon.com.