Cooperatives, Worker-Owned Businesses, and Cooperative-Style LLCs: What’s the Difference?
By: Michael Jonas, JD, MBA
If you have ever thought about starting a community-rooted business or a shared ownership venture, you may have come across terms like "cooperative," "co-op," or "worker-owned business." You may have even considered forming an LLC that follows cooperative values. While these options may seem similar at first glance, they are not all the same, especially under Oregon law. Let’s break it down.
What Is a Cooperative Corporation in Oregon?
In Oregon, a cooperative is a legally recognized type of corporation. It is governed by Oregon Revised Statutes Chapter 62, which outlines specific rules for how cooperatives must be formed, managed, and dissolved. Unlike traditional for-profit corporations, cooperative corporations are owned by their members, who are also the people using the cooperative’s products or services. These members vote on decisions democratically, typically following a one-member, one-vote system. This means that each member has equal voting power, regardless of how much money they have invested. Cooperatives are formed to meet the needs of their members and are accountable to those members. While some cooperatives operate as nonprofits, others are for-profit and generate surplus revenue. That surplus is usually distributed based on how much each member uses or contributes to the cooperative, a system known as patronage, rather than based on capital investment.
Can a Cooperative Be a Nonprofit in Oregon?
Yes, in Oregon, a cooperative can operate as a nonprofit. Under ORS Chapter 62, cooperatives are allowed to limit or eliminate surplus distributions to members and instead reinvest earnings into the organization. This structure is often used by housing cooperatives, shared kitchens, artist collectives, or other mission-driven co-ops that serve their members while prioritizing community benefit. Even if your cooperative operates like a nonprofit, you still file as a cooperative corporation, not as a nonprofit public benefit corporation under ORS Chapter 65. To do this, you would register your business with the Oregon Secretary of State as a cooperative corporation under Chapter 62 and include language in your articles or bylaws stating that the cooperative will not make profit distributions and will reinvest funds to serve its mission. In some cases, nonprofit-style cooperatives may qualify for federal tax-exempt status, such as 501(c)(3) or 501(c)(4), depending on their purpose. However, most traditional worker or consumer cooperatives do not qualify for 501(c)(3) because their benefits are limited to members, not the public. A co-op may be eligible for 501(c)(4) social welfare status, especially if it does advocacy or community education.
What Is a Worker-Owned Business?
A worker-owned business is one in which the workers themselves own and often govern the business. Ownership may take different forms, such as membership rights, shares, or equity, but the central principle is that the people doing the work have a meaningful stake in the business’s success. Worker ownership is about more than financial participation. It also includes decision-making power, shared responsibility, and a commitment to equitable operations. These businesses can be structured in different legal forms, most commonly as worker cooperatives or as worker-owned LLCs.
Worker Cooperatives
A worker cooperative is a specific type of cooperative corporation where the members are also the workers. These businesses are legally recognized as cooperatives and follow the democratic one-member, one-vote model. In a worker cooperative, workers are also members and owners. Each worker-owner has one equal vote in decision-making. Profits are typically distributed based on labor contributed, such as hours worked or job roles. Membership may come with requirements, such as a probationary period, ongoing minimum work hours, or active participation in governance. Worker co-ops are ideal for businesses that want to prioritize employee ownership and long-term collective stewardship.
Worker-Owned LLCs
An alternative structure for worker ownership is a multi-member LLC designed with a cooperative model. In this arrangement, the LLC is owned by its members, who are also the workers. The operating agreement outlines how decisions are made and how profits are shared. In a worker-owned LLC, members are often also employees or contractors. Voting rights and profit-sharing can be set up to reflect cooperative values. The structure is more flexible but not legally recognized as a cooperative. The business can choose how formal or informal to make its governance and participation requirements. This model can work well for small or early-stage businesses that want to start with worker ownership but prefer fewer regulatory hurdles.
Membership, Work Requirements, and Employment in Co-ops and LLCs
Cooperatives often include requirements for membership. These may include contributing work hours, paying membership dues, or attending meetings. For example, in a well-known episode of Broad City, a character nearly loses her membership in a housing co-op for failing to complete her required shift. These kinds of expectations are common and help reinforce the idea that membership involves participation, not just ownership. In both cooperative corporations and worker-owned LLCs, it is also common for members to be employees or contractors. Someone may earn a paycheck for their labor and also receive a share of the business's surplus because they are a member. However, not all workers are necessarily members, and not all members are necessarily workers. Clear documentation, whether bylaws for a cooperative or an operating agreement for an LLC, is key to defining these roles.
Voting Rights and Profit Distribution
It is important to distinguish between voting rights and financial rights in shared ownership models. In a cooperative corporation, members typically each have one vote regardless of their investment or work hours. However, surplus profits are not divided equally. Instead, they are usually distributed based on patronage, which reflects how much a member used the co-op or contributed to its operations. In an LLC, there are no default rules requiring equal voting or profit sharing. Members can decide to divide profits and decision-making power in any way they choose, but it must be written into the operating agreement. A worker-owned LLC that adopts a cooperative model may choose to mimic the one-member, one-vote approach and share profits based on labor contribution.
Which One Is Right for You?
If your goal is to be recognized as a cooperative and you are committed to a member-governed structure, a cooperative corporation is the right legal form. This is especially true if you plan to apply for grants or work with organizations that specifically support cooperatives. If you are starting small or want more flexibility to test out a cooperative approach, you might choose an LLC and write cooperative principles into the operating agreement. This can be a stepping stone toward a full worker co-op or simply the model that best fits your team's needs. If you want to operate as a nonprofit, it is possible to structure a cooperative that does not distribute profits to members and instead reinvests in its mission. However, even nonprofit cooperatives must be registered as cooperative corporations in Oregon, not as nonprofit corporations. Whether or not your cooperative can receive 501(c)(3) status depends on your activities and how much public versus private benefit your organization provides.
Final Thoughts
Worker ownership and cooperative models are more than just legal structures. They are about centering equity, participation, and community benefit in how we do business. Whether you're forming a cooperative corporation, a nonprofit cooperative, or an LLC that operates with cooperative values, the most important thing is that your structure reflects your mission and supports shared ownership and accountability.
Keep in mind that while a cooperative-style LLC may walk the walk, it will not carry the legal identity, tax treatment, or funding opportunities of a formally registered cooperative corporation. Structure matters, especially when it comes to governance, compliance, and long-term sustainability. And if your co-op asks you to mop the floor or sort the mail, make sure to clock your hours. Worker-owners often wear many hats, especially in the early days.
If you are exploring cooperative ownership or trying to decide which structure best fits your vision, let’s talk. You can schedule a consult to get clear, personalized guidance on your next steps and how to build a structure that works for you and your community.
