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Credit Unions as Cooperatives: How Charter Choice Drives Social Enterprise

As social entrepreneurs increase in number, the cooperative is likely to be regarded by many as an especially appropriate and useful platform for social enterprise ventures.

  • Christopher Nicholls Filene Research Fellow
  • W. Geoff Beattie Chair in Corporate Law at University of Western Ontario

Executive Summary

The traditional business corporation has been the dominant form of organization for big business for more than a century. Could that be changing? The Enron and WorldCom accounting scandals followed by the great recession of 2008 have led to growing public disillusionment with unrestrained for- profit business enterprises. Yet, the legal mandate of traditional corporations and the powerful influence of activist share-holders can make pursuit of corporate social responsibility by traditional corporations highly challenging. Enter the benefit corporation.

The legal form a business chooses has tax implications, but it is important for many other reasons. On the surface, the legal structure of a business serves as the backbone to support its operations. Businesses operate in many legal forms—sole proprietorships, partnerships, corporations, mutuals, business trusts, or cooperatives, to name some of the most well known. Dig deeper and you’ll begin to understand how the legal, organizational form of a business often correlates directly with its values, goals, and strategic vision.

Where do financial institutions—particularly credit unions—fit into this equation? The cooperative form itself was one of the earliest and most important forms of enterprise aimed at addressing the shortcomings of the traditional business corporation and “baking into” business charters goals beyond profit or share-holder wealth maximization. Very early on, the cooperative business model emerged to address consumer and employee needs in contexts where the business corporation seemed to fall short.