Why We Should Invest In Cooperatives

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This page has answers to help you understand the legal framework, forms, and operational characteristics of this business.

Definition:

A cooperative is a form of business ownership that consists of a group of people who have joined together to perform a business function more efficiently than each individual could do alone.

The main purpose of a co-op is not to make a profit for its self, but to improve each member's situation. However, members of certain types of co-ops do make a profit by selling their product and/or service to customers who are not co-op members.

As legal entities

A mainstream cooperative comprises a legal entity owned and democratically controlled by its members, with no passive shareholders, unless they hold non-voting shares. It thus combines the equal control characteristic of many partnerships with the legal personality conferred upon corporations.

In the United States most co-ops are organized as limited liability companies but other legal entities may also be used.

Cooperatives in the US may or may not pay dividends. The surplus made may be returned to members by way of a rebate or bonus on their activity with the cooperative, or as a dividend on their shareholding in the co-op.

In the United Kingdom the traditional corporate form taken by co-ops is the 'bona fide co-operative' under the Industrial and Provident Societies Acts.

Since the 1980s, however, many co-ops have incorporated under the Companies Acts, limited either by shares or by guarantee.

In a bid for sustainability, many co-ops have adopted the principle of 'common ownership, and have a zero or nominal share capital, along with a clause stipulating altruistic dissolution. This means that the cooperative cannot be wound up and its assets distributed for personal profit.

A particularly successful form of multi-stakeholder cooperative is the Italian "social co-op", of which some 7,000 exist. Its objective is the general benefit of the community and the social integration of all citizens.

"Type A" social co-ops bring together providers and beneficiaries of a social service as members.

"Type B" social co-ops bring together permanent workers and previously unemployed people who wish to integrate into the labor market.

• the co-operative has legal personality and limited liability


• voting is one person one vote.


• no more than 80% of profits may be distributed, interest is limited to the bond rate and dissolution is altruistic. This means that the entity cannot be wound up and its assets distributed for personal profit.

Values And Characteristics

Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity.

In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others.

Membership is open, meaning that anyone who satisfies certain non-discriminatory conditions may join. Unlike a union, in some jurisdictions a co-op may assign different numbers of votes to different members.

However most co-ops are governed on a strict "one member, one vote" basis, to avoid the concentration of control in an elite.

Economic benefits are distributed proportionally according to each member's level of economic interest in the cooperative, for instance by a dividend on sales or purchases.

Social co-ops

• type A co-operatives provide health, social or educational services


• those of type B integrate disadvantaged people into the labour market.

They do not include other factors of disadvantage such as race, sexual orientation or abuse

• various categories of stakeholder may become members, including paid employees, beneficiaries, volunteers (up to 50% of members), financial investors and public institutions.

  In type B co-operatives at least 30% of the members must be from the disadvantaged target groups

General Forms of Cooperatives

Co-ops may be generally classified as either consumer or producer co-ops, depending largely on the mutual interest that their membership shares. Classification is also often based on their function.

Cooperatives can take many forms. For example, a group of single parents may decide to band together to provide a child-care facility so they will have reliable day care for their children whenever they are out for work. Each parent contributes a certain amount of money and/or time, and in exchange they all have a safe place to leave their children.

A worker or producers cooperative is wholly owned and democratically controlled by its "worker-owners". There are no outside, or consumer owners, in a workers' coop, only the workers own shares of the business. Membership is not compulsory for employees, and only employees can become members.

Employees may cooperate under an arrangement known as a credit union.

The purpose of a credit union is not to make a profit for itself, but to help each member be more financially secure. By creating their own financial institution, members can receive a higher interest rate on the money they have placed in savings and receive a lower interest rate on loans.

Retailers have also started establishing co-ops. Ace Hardware, for example, is a co-op of independent hardware store owners. By banding together, the hardware owners can share advertising costs and receive discounts for bulk ordering of materials and supplies.

Sharing costs and discounts is enable ling these small business hardware stores to favorably compete with large chain hardware stores.

While cooperatives can be found in many different areas of the economy, they are most commonly found in the agricultural area. A group of farmers may band together to allow themselves to be more competitive and to achieve more economic power.

Agricultural cooperatives allow members to save money on materials needed to produce and market their products, which means a larger profit margin for all members.

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