Cooperatives and Joint Ventures

Cooperatives

Cooperatives are independent and democratic organizations in which each member has equal control.

Learning Objectives

Consider the potential advantages and disadvantages of a cooperative as an organizational model

Key Takeaways

Key Points

  • A cooperative (coop) is defined as an independent democratic organization, owned and operated equally by all members, with objectives to fill economic, social and/or cultural needs.
  • The upsides of a cooperative mostly revolve around equality in ownership and management, along with a strong relationship with relevant communities.
  • When outlining a coop business plan, it is useful to take into account Rochdale’s 7 Principles, which provide some context for what is expected of a coop.
  • Coops are a great option depending on the objectives of the organization, as they diversify risk while providing positive contributions to the community.

Key Terms

  • hierarchy: A body of authority defined by fixed ranks and positions.
  • Autonomy: Freedom to act and function independently.

Cooperatives (often referred to as coops) are loosely defined as an independent group of individuals voluntarily collaborating in pursuit of social, cultural and/or economic objectives. A cooperative is owned and operated by all members equally, and control is created democratically (everyone has a voice in organizational decisions). While it is a business model, it can be applied to a wide variety of other circumstances such as consumer cooperatives, housing cooperatives, credit unions, worker cooperatives, and various non- profit formats.


Examples of Coops: This is an excellent video that illustrates not only the mentality behind coops (the why), but also some concrete examples of how these cooperative business are created and executed.

Why Choose A Coop?

At the core of a coop is the concept of equality. There is no real room for hierarchy in a coop, nor is it built to differentiate between different levels of ownership, contribution, or partnership. Coops are intrinsically democratic, and rely heavily on the assumption that everyone involved has equal stake. This balanced organizational model (flat organizations) can come with both challenges and advantages.

For example, cooperatives are quite resistant to external factors. 80% of coops survive their first five years (compared to 41% of businesses with other ownership types). Another benefit is that cooperatives are often invested in solving social issues and providing value in their communities. Coops can be highly ethical and unifying forces in industries and communities, and demonstrate a commitment to valuing everybody involved.

How To Build A Coop

While there are many perspectives on what makes a coop, the seven Rochdale Principles are a useful starting point when it comes to setting the ideological boundaries of your coop:

  1. Voluntary and open membership
  2. Democratic member control
  3. Economic participation by members
  4. Autonomy and independence
  5. Education, training, and information
  6. Cooperation among cooperatives
  7. Concern for community

From a legal standpoint, coops are quite simple. It is registered under the stipulation that all members are equal democratic contributors, and that joining it is open and non-discriminatory as long as the approved requirements for participation are met. No individual owner can derive profit exceeding the fixed interest, nor gain greater control over the operations of the cooperative.

Conclusion

Coops are a good option depending on what it is an organization is trying to accomplish. Considering the specificity of this model in terms of structure and decision-making, owners must be comfortable being merely one member among many and being generally oriented towards beneficial objectives for the community.

Joint Ventures

A joint venture is when two or more parties are both invested in an original concept/project in terms of money, time, and effort.

Learning Objectives

Explain how a joint venture is formed, how it functions and why it eventually dissolved

Key Takeaways

Key Points

  • Joint ventures are temporary partnerships that can have small or ongoing projects.
  • A joint venture can ensure the success of smaller projects since the cost of starting new projects is generally high. A joint venture allows both parties to share the burden of the project, as well as the resulting profits.
  • Many countries limit foreign ownership of assets and legally force foreign companies into a joint venture with a local partner in order to do business there.

Key Terms

  • joint venture: A cooperative partnership between two individuals or businesses in which profits and risks are shared.
  • emerging countries: Countries such as the BRIC nations (Brazil, Russia,India, China) have achieved advanced economic development and, thus, are seen as emerging countries in the global marketplace.

A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses, and assets. With individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are “co-venturers. ”

Joint Venture Basics and Benefits

A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits.

The venture can be for one specific project only or for a continuing business relationship which is known as a “consortium JV. ” A consortium JV is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, or rental agreements, for one-time contracts. The JV is dissolved when that goal is reached.

By its formation the JV becomes a new entity with the following implications:

  • It is officially separate from its founders, who might otherwise be giant corporations, even amongst the emerging countries
  • The JV can contract in its own name, acquire rights (such as the right to buy new companies)
  • It has a separate liability from that of its founders, except for invested capital
  • It can sue (and be sued) in courts in defense or its pursuance of its objectives

Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns. Ultimately, short-term and long-term successes are both important. In order to achieve this success, honesty, integrity, and communication within the joint venture are necessary.

Domestic and Foreign Firm JVs

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Sony Ericsson: Sony (known for its electronics) and Ericsson (known in the B2B telecom industry) created a joint venture in order to expand the business in an industry that’s new to Sony users

A joint venture is sometimes a partnership between a domestic firm and a foreign firm. Both partners invest money and share ownership and control of partnership. Joint ventures require a greater commitment from firms than licensing or the various other exporting methods. They have more risk and less flexibility.

A domestic firm may wish to engage in a joint venture for a variety of reasons; for example, General Motors and Toyota have agreed to make a subcompact car to be sold through GM dealers using the idle GM plant in California. Toyota’s motivation was to avoid U.S. import quotas and taxes on cars without any U.S.-made parts.

Many countries limit foreign ownership of assets and legally force foreign companies into a joint venture with a local partner in order to do business there. Poland, for example, limits foreign ownership of farmland and will continue to do so for another decade under agreements with the EU.

Dissolution

The JV is not a permanent structure. It can be dissolved when:

  • Aims of original venture are not met
  • Either or both parties develop new goals
  • Either or both parties no longer agree with joint venture aims
  • Time agreed for the joint venture has expired
  • Legal or financial issues
  • Evolving market conditions mean that the joint venture is no longer appropriate or relevant
  • One party acquires the other

Syndicates

A syndicate is a self-organizing group of individuals or entities formed to transact specific business or to promote a common interest.

Learning Objectives

Apply the concept of syndicates to business

Key Takeaways

Key Points

  • Syndicates are self-organizing groups of people or firms that form around a common interest.
  • A joint venture (JV) is a business agreement in which parties agree to develop, over a specific period of time, a new entity and new assets by contributing equity.
  • In the case of individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such a partnership can also be called a joint venture and the persons referred to as co-venturers.

Key Terms

  • franchise: The authorization granted by a company to sell or distribute its goods or services in a certain area.
  • franchise agreement: a legal, binding contract that authorizes a company to sell or distribute another’s goods and services in a certain area

A syndicate is a self-organizing group of individuals, companies, or entities formed to transact some specific business or to promote a common interest. It may also facilitate criminal activity and organized crime. The term is sometimes associated with anarchist theory, specifically anarcho-syndicalism, which represents an alternative to both the nation state and capitalist corporations. Syndicate comes from the French word syndicat, meaning trade union (syndic meaning administrator). The word can be further traced to the Latin syndicus and the Greek σ (syndikos), which refers to a caretaker of an issue and is comparable in meaning to ombudsman or representative.

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Syndicate: A syndicate is a self-organizing group of individuals, companies or entities formed to transact some specific business or to promote a common interest.

In finance, a group of banks lending a (usually) large amount of money to a single borrower for a specific purpose is referred to as a bank syndicate, or often simply as a syndicate.

A joint venture (JV) is a business agreement in which parties agree to develop, over a specific period of time, a new entity and new assets by contributing equity. The parties exercise control over the enterprise and consequently share revenues, expenses and assets. Other types of companies include JV limited by guarantee, in which partners hold shares.

In the case of individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, the partnership may be called a joint venture and the persons referred to as co-venturers.

The venture may concern one specific project, in which case the JV is referred to more correctly as a consortium; alternatively, it may represent an ongoing business relationship. The consortium JV (also known as a cooperative agreement) is formed when one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, or rental agreements for one-time contracts. The JV is dissolved when the goal is reached.