Starting a Tiny House Coop
Many factors must be considered when organizing a business. In addition to financing, location, and products or services, there are legal considerations. New businesses must register with state and federal governments. Additionally, businesses must select a business structure, which determines tax requirements, and must create an agreement between participating parties which will outline operating guidelines.
Selecting a Business
A business that builds tiny houses has the potential to be both financially and socially rewarding. Tiny houses, which are houses that are less than 400 square feet, are part of a growing movement to reduce debt and increase sustainability and quality of life (Mader, 2014). These houses address social issues, such as homelessness, debt, and environmental sustainability, in addition to providing a housing solution that many advocates have found personally rewarding.
Tiny houses are being considered a potential solution to homelessness in America. In Austin, Texas, more than 200 houses are being built to house the homeless (Federico-O’Murchu, 2014). These houses, which have been built at a cost as low as $100 per house by California artist Gregory Kloehn, take advantage of salvage materials and simple construction methods that do not require advanced construction experience. In addition to providing shelter, tiny houses are saving tax dollars by preventing the petty crime associated with chronic homelessness and keeping the homeless out of incarceration, which costs $34,480 per inmate, per year. Programs such as Utah’s “Housing First” program have seen a 74% reduction in chronic homelessness.
Tiny houses are more than a solution to homelessness. These houses also address the environmental concerns of overpopulation and dwindling natural resources. Tiny house dwellers are not able to make unnecessary, frivolous purchases due to the limited storage in their homes (Stone, 2012). This reduces the amount of resources used to produce consumables and allows residents to reduce spending. Additionally, tiny houses, which are often adorned with solar panels and energy-efficient appliances, use less energy. This translates into a smaller environmental impact and a low monthly utility bill.
In addition to lower monthly expenses, owners of tiny houses are less likely to have mortgages. According to Barbara Mader (2014), 68% of tiny house owners have no mortgage, compared to only 29% of US home owners. This is partially attributed to the fiscal responsibility that is necessary when living in a tiny house, and partially to the low cost of a tiny, $15 thousand, on average (Stone, 2012). This fiscal responsibility and reduction of clutter has allowed many tiny house owners to find a greater happiness than most US house owners.
Choosing a business form
The best business form for a tiny house business is a cooperative, which is owned and operated for the benefit of members who use its services, referred to as user-owners (sba, 2014). Members become part of the cooperative by purchasing shares, and are able to vote to control the direction of the cooperative, which is run by an elected board of directors and officers.
Forming a tiny house cooperative has several advantages over a traditional business form, such as a partnership or corporation, including tax advantages, government funding opportunities, and a reduction in operating expenses. The cooperative will generate revenue through the sale of completed tiny houses, building material, and cooperative shares.
Cooperatives are not taxed as a business. Instead, distributed earnings are taxed as personal income by members. By eliminating the tax burden associated with generating a profit, the tiny house cooperative will have greater financial means to finance the sale of discounted tiny houses to qualifying low-income purchasers. This will preserve the social aspect of assisting Americans living in homelessness and poverty. The cooperative will also have unique opportunities to access government funding to finance social solutions to poverty.
In addition to tax savings and government funding, running a tiny house cooperative will provide user-owners with the opportunity to take advantage of economies of scale. This will reduce the cost associated with building a tiny house, allowing the cooperative to increase profit margin on full-priced house sales and reduce costs on discounted-house sales.
Finally, a cooperative has the advantage of a democratic organization. Ownership will be a constantly-changing structure, with new members being added each year. This will allow the cooperative to serve the needs of the many, which always outweigh the needs of the few or one (Spock, 1982).
Operating Agreement
Before incorporating the cooperative, the initial members of the organizing committee must decide on a business strategy and conduct analysis of costs and feasibility and financial needs. After this is complete, the cooperative can be incorporated by completing the following steps: file articles of incorporation, create bylaws, create a membership application, conduct a charter member meeting and elect directors, obtain licenses and permits, and hire necessary employees.
The first step of incorporation, filing articles of incorporation, must be approved by the state business entity registration office before members can create bylaws. These bylaws, which must comply with state law, should list requirements for membership, including duties and responsibilities, in addition to operational procedures. After the initial bylaws are created, a membership application will need to be created, which should include member rights and benefits.
Next, a charter member meeting will be conducted, where bylaws will be voted on and adopted and a board of directors will be elected. In this meeting, initial bylaws should be discussed and amended as necessary until a majority vote is reached to adopt the bylaws. These adopted bylaws will then be the operating agreement, and can be referred to when facing operational issues. After the bylaws are adopted, they will be reviewed once each year at an annual bylaw meeting, which will provide members the opportunity to adjust bylaws to meet the cooperative’s changing needs.
The tiny house cooperative will be dedicated to the benefit of current members, future members, and society. In order to preserve the social missions of the cooperative, to assist Americans living in poverty and to reduce waste to increase environmental sustainability, it will be critical that provisions exist in the bylaws outlining the portion of income to be directed towards social missions. Additionally, the bylaws should define the specific requirements for applicants to qualify for a discounted-house and the building specifications of the discounted houses.
Finally, the cooperative will have to obtain any licenses and permits from the state and city of operation and hire necessary employees. The board of directors should meet with an attorney, if there is not an attorney on staff, to ensure that the cooperative has all required documentation. The need to hire employees will be voted on by the cooperative membership in order to reduce unnecessary employment costs.
References
Federico-O’Murchu, L. (2014, February 26). Tiny Houses: A big idea to end homelessness. NBC News. Retrieved from http://www.nbcnews.com/business/real-estate/tiny-houses-big-idea-end-homelessness-n39316
Mader, B. (2014, March 28). Tiny houses reflect green trend. Examiner.com. Retrieved from http://www.examiner.com/article/tiny-houses-reflect-green-trend
Sba.gov. (2014). Choose your business structure: cooperative. Retrieved from http://www.sba.gov/content/cooperative
Spock. (1982). Star Trek II: The Wrath of Khan.
Stone, D. (2012, December 10). Tiny House, Happy Life? National Geographic Magazine. Retrieved from http://newswatch.nationalgeographic.com/2012/12/10/tiny-house-happy-life/














