Oct 16 2015

Credit Unions as Cooperatives: How Charter Choice Drives Social Enterprise

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 shareholder 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.

The credit union system has always been more about the average financial consumer and general public than the bottom line. In addition to for-profit businesses seeking to maximize shareholder wealth, we are beginning to see the emergence of a new kind of corporation: one that pursues community interests. During the past 10 years, at least 31 US states have introduced legislation that allows entrepreneurs to form a new type of for-profit business organization, one that must pursue public interests alongside its profit-making goals.

This report seeks to answer one question: Does the rapid proliferation of social enterprise entities, such as the benefit corporation, represent an opportunity, a threat, or merely an occasion for indifference for credit unions? As social entrepreneurs increase in number, the cooperative is likely to be regarded by many as an especially appropriate and useful platform for many social enterprise ventures. Credit unions can become the financial providers of choice for social enterprises that share a similar focus.

Filene thanks its generous partners for making this important research possible

Report Number 370