There are a range of businesses that you can start in South Africa. From public, private to non-profit companies. These businesses all have different definitions and different laws to abide by. One of the most popular types of businesses in South Africa is a cooperative business.
A cooperative business is one where the business is owned and controlled equally by the people who use its services or work. Basically, the business is run and owned by and for its members. Members can include employees or residents, and they all have an equal say in what the cooperative does and share in the profits.
Cooperative businesses are often compared to traditional businesses and small businesses, but they are not small businesses. Unlike traditional businesses where the goal is profit, cooperative businesses work to meet economic, cultural and social needs of its members and its community.
In this article, we look at cooperative businesses in South Africa and the benefits of starting one for yourself.
Different Types of Cooperatives in South Africa
There are different types of cooperatives in South Africa. The main types of cooperatives in South Africa include:
Worker Cooperatives – In this cooperative, employees have a stake in the business. They also have an equal vote in the way the business runs. An example of this is a bar or a bakery.
Financial Cooperatives – This is a financial institution that is owned and operated by its members. It acts on behalf of a group to offer traditional banking services.
Agricultural Cooperatives – This is a business where a group works together to produce, process or market agricultural products and supplies agricultural inputs and services to its members.
Cooperative Burial Society – This cooperative provides funeral benefits, including funeral insurance and related services to its members and dependents.
These are the most popular or main types of cooperatives in South Africa. If you want to open a cooperative business, you can check out the other types on the Companies and Intellectual Property Commission (CIPC) website.
Benefits of a Cooperative Business in South Africa
Because cooperatives are founded for the mutual benefit of all members, there are many benefits to establishing one. Some of the benefits include:
- Higher buying power by lowering costs and buying in bulk.
- Better bargaining power.
- Expand into new and existing market opportunities.
- Equal say in the business for its members.
- Shared values by its members.
- Tax benefits for cooperatives organised as non-profit businesses.
- Access to various industry incentives.
Cooperative Incentive Scheme
Another benefit of opening a cooperative business is establishing a cooperative incentive scheme (CIS). The CIS is a grant for registered cooperatives. Cooperatives must have an objective to improve the viability and competitiveness of cooperative enterprises by lowering their cost of doing business. This is done through an incentive that supports Broad-Based Black Economic Empowerment.
The maximum grant amount for one cooperative business is R 350 000. Eligible businesses can use the money in various activities. These include business development services such as feasibility studies, business, manufacturing and production systems. And production efficiency and improvement.
Additionally, other activities such as technological improvements, machinery, equipment, commercial vehicles and infrastructure linked to the project and working capital.
For your cooperative to benefit from CIS, you need to be registered with the CIPC and according to the Cooperatives Act. The Cooperatives Act provides for the formation and registration of cooperatives, the establishment of a cooperatives advisory board and the winding up of a cooperative and the matter connected therewith.
Additionally, to qualify your cooperative must be majority black-owned by members who are historically disadvantaged individuals. Lastly, your cooperative must have projects in any of the different economic sectors, adhere to cooperative principles and support women, youth and people with disabilities.
Funding for Cooperative Businesses in South Africa
It’s nice to see all the benefits of having a cooperative business, but you also need to know where to get funding for this business. Some of the funding initiatives for cooperatives include:
Small Enterprise Funding Agency (Sefa)
Sefa provides funding for two types of cooperatives, mainly: cooperative financial institutions and enterprise cooperatives.
To qualify for funding from Sefa, you need to meet the following criteria:
- Your business must register with the CIPC.
- Have a valid deposit-taking licence (duly registered with SARB and/or CBDA).
- NCR certificate.
- Minimum membership of 200 people.
- Member’s shares/savings must have a minimum value of R100 000.
- Your business must have savings and loan policies.
- Fully functioning board.
- Valid tax clearance certificate.
- Must be operating for at least six months.
- Must have a 3–5-year business plan with financial projections.
- Proof of proper systems and processes in place.
- Outstanding loan book/records of at least R100 000.
Note: For the cooperative financial institutions loan, the maximum loan term is 5 years and interest rate is risk based.
To qualify for the enterprise cooperatives funding, you need to meet the following criteria:
- Your cooperative must be involved in enterprise activities.
- You must have a valid CIPC registration certificate.
- Certified constitution.
- A valid tax clearance certificate.
- Valid NCR certificate.
- Minimum membership of 5 people.
- Your business must be in operation for at least six months.
- Have a fully functioning board.
- A long-term business plan with financial projections.
- Secondary cooperatives to provide a pipeline of potential clients upon application. Proof of residence of each board member.
Note: The maximum funding amount is R5 million with a maximum loan period of 5 years.
This is just one of the many funding initiatives available in South Africa for cooperatives. If you want to find out about other funding opportunities for cooperatives, read our guide to cooperatives in South Africa.
