Q:

What are the disadvantages of a cooperation?

A:

Quick Answer

The primary disadvantages of a cooperation (cooperative organization) revolve around limited profit distributions, a minimum participation requirement, ongoing educational requirements and limited voting powers. The primary drawback for most entrepreneurs is the collective management style, which limits the amount of profits procured by each member.

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Full Answer

The democratic management style and the caps placed on member profits are designed to effectively provide a service to the public and the formation's members. As a result, cooperations place an emphasis on the service provided at the cost of capping return on investment. The priorities of a cooperation therefore complicate the recruitment – and therefore the ability to satisfy the five-member minimum requirement – of potential members whose primary interest in the business is a financial return.

Another disadvantage associated with the democratic management style of a cooperation revolves around voting powers. All members involved in a cooperation are required to actively engage in the formation's practices; however, all members are limited to only one vote regardless of their activity or investment amount. The sharing of powers, regardless of investment or involvement, places a critical emphasis on the personal and working relationships of the formation's members. In addition to shared power and profits, cooperations require ongoing education requirements.

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