There are two ways that residents of a community can jointly capitalize a new local business.
One is to start a cooperative, a business that is owned by its member-customers, who provide the necessary capital in the form of member dues, govern the business democratically, and receive a share of any surplus or profits.
Customer-owned cooperatives have been particularly successful in the grocery sector. The U.S. is home to about 300 grocery store cooperatives, which have annual sales of about $1.5 billion. They include stores like The Wedge in Minneapolis and the Davis Food Co-op in Davis, California.
Another approach is to create a community-owned store that is structured as a local stock corporation. There are at least a dozen examples of these around the country. One of the best-known is the Powell Mercantile in Powell, Wyoming. Founded in 2002, this profitable downtown department store is owned by about 800 local families who capitalized the business by buying shares priced at $500 each.
The Powell Mercantile and other community-owned department stores like it operate in many respects like ordinary stock corporations. Shareholders meet periodically to vote on major matters and elect a board of directors. The board, which is typically comprised of local civic and business leaders, oversees the enterprise, while a store manager handles day-to-day operations.
But, unlike most stock corporations, community-owned corporations typically have provisions in their charters and bylaws that prevent out-of-state residents from buying stock and limit how many shares any one person can own. This ensures that the business remains locally and democratically controlled.
While cooperatives and community corporations share a democratic structure, they differ in some respects. By law, the activities of co-ops must be fairly closely tied to meeting the needs of their member-owners, whereas community corporations may have somewhat broader missions. Setting up as a community corporation may also make raising start-up capital a little easier, because, depending on the corporation’s bylaws, a single investor may be able to buy multiple shares.