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What are the advantages and disadvantages of a cooperative?

Business owners in Maryland may benefit from learning more about cooperatives, including their advantages and disadvantages. A cooperative may be described as an organization or enterprise that is owned and operated by members, otherwise known as user-owners, who benefit from using the services. One of the core disadvantages of cooperatives is that their success depends heavily on the participation of its members.

Some cooperatives suffer slower cash flow since more enterprising individuals may opt for an investment that yields a greater rate of return. However, there are several reasons why many people chose to form a cooperative. Some people appreciate the defining element of democracy in most cooperatives, where each member is valued equally with a single vote. The structure of cooperatives is less disruptive, and may be less susceptible to dissolution as members come or go. Participating in cooperatives enables many owners to improve their business operations due to the discounts that are available.

Some cooperatives may qualify for funding opportunities provided by grant programs from the federal government. Anyone involved in operating an existing rural development cooperative, or establishing a new one, may qualify for the USDA Rural Development. Members are typically not taxed on any income generated from the cooperative, which is similar to the tax treatment of a limited liability company and its members. In order to begin the process, applicants must obtain a taxpayer identification number from the Internal Revenue Service among other steps.

Business owners and entrepreneurs interested in learning more about cooperatives or Business formation may benefit from consulting legal counsel. Lawyers may be instrumental in helping new businesses and startups get operations running and profitable. Legal counsel may also be equipped to review new contracts or agreements for any terms or conditions that could adversely affect the enterprise's long-term success.

Source: United States Small Business Administration, "Cooperative", November 14, 2014

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