One of the biggest decisions in starting a cooperative, or any business, is what legal entity to choose. A legal entity is a person or organization possessing separate and distinct legal rights.
Why does your choice in entity matter?
Establishing a legal entity gives your organization distinct legal rights that are established by the law. Your entity will impact many of the following:
- Liability: What kind of protection does an entity offer to protect your personal assets?
- Business Decision-Making: What values does the law mandate that you need to center when making decisions for your business?
- Taxes: What tax implications does your choice in entity have? How will that affect your business’s tax liability and how will it affect your own tax liability?
- Reporting and Administrative Requirements: What extra work do you have to do in order to maintain your entity?
- Accountability and Profit-Sharing: How does the entity choice limit who can share in the profits, or surplus, of a business activity? How does the entity affect who can be included in governance or who can be considered in decision-making?
Choosing the Best Entity
Each entity type is different and has advantages and disadvantages. Below is a spreadsheet that will be continually updated and revised to explain some of the differences between key entity types cooperatives and alternative businesses often explore.>