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The cooperative and the franchise

A cooperative is a business firm owned and, in many cases, operated by its members. To start a cooperative, a group of people apply for a charter from the state government. After the charter has been given, a board of directors is elected. Managers and staff members are hired or appointed to operate the business.

A cooperative, unlike a corporation, is not set up to make a profit. Rather, its purpose is to help its members get the best prices. A cooperative helps its members buy or sell at a lower prices through working together. If the cooperative sells products for its members, it attempts to get a good price by selling in large quantities. If it buys goods for its members, it attempts to get a low cost by buying in large amounts.

Insurance companies, electric power companies, savings and lending agencies, agricultural buying and selling organizations, bookstores, apartment buildings, and even restaurants may be cooperatives. The largest number of cooperatives are credit unions, in which members can save and borrow money. Credit union membership is usually available through the company, agency, or organization in which a member works.

A franchise is a grant or right to sell some other company`s product or service within a given area or territory. A franchise is not so much a business as a method of doing business. It permits people to organize as a sole proprietorship, a partnership, or a corporation. The individual or individuals enter into an agreement to sell another company’s product or service in one area. The franchise agreement spells out the duties of both parties. The person or persons agree to certain ways of running the business in return for help from the parent company selling the franchise. Many restaurants, motels, and small shops are operated as franchise.

The franchise has advantages and disadvantages. A person can start a business with the help of the parent company. Such help cuts down the risk of failure because the parent company shares its experience and business techniques. However, in return for that help, the franchise owner pays a share of the sales or a yearly set fee to the parent company. Too, the purchase of a franchise often requires an investment of a fairly large amount of money.